Gold Price Volatility And Federal Reserve’s Hawkish Tone: Weekly Market Analysis

Fundamentals:

This report discusses the recent fluctuations in gold prices and the events that shaped them over the past week. Initially, gold prices remained relatively stable around $2030/oz as investors awaited the first FOMC meeting of 2024. It was widely believed that the Federal Reserve would not announce an early-year rate cut, leading to expectations of a non-eventful Fed Day for the gold market.

However, the FOMC meeting took a surprising turn as Chair Jerome Powell’s comments and the carefully selected wording of the FOMC’s statement struck a more hawkish tone than anticipated. While headlines overstated the claim that a rate cut in March was ruled out completely, Powell’s emphasis on the need for “greater confidence” in inflation trends dampened hopes for lower rates in Q1.

This shift in sentiment led to a brief rally in gold prices to just above $2050/oz on Wednesday morning but was followed by a drop after the Fed’s announcement, with gold returning to the $2030/oz range.

Postdoc, optimism began to return as the US Dollar lost some of its gains, and Treasury yields softened. Investors started considering the possibility that improving inflation data or weakening macroeconomic factors might encourage the Fed to cut rates in March. This optimism pushed gold prices to a weekly high of $2060/oz in Thursday’s trading, with a slight correction later in the day.

However, the optimism was short-lived as Friday’s release of the January Jobs Report exceeded expectations, revealing robust job growth in the US economy. This signaled that pressure on the Fed to lower interest rates would not be coming from the labor market anytime soon. As a result, gold spot prices declined as the US Dollar strengthened alongside surging Treasury yields.

Despite a challenging end to the week, gold remained resilient, and the report suggests that if prices consolidate below $2040, gold could still achieve a net gain for the week. With a lighter macroeconomic calendar in the upcoming week and potential commentary from Fed officials regarding their requirements for “greater confidence,” gold’s recent stability may provide a strong foundation for further gains in the first quarter of 2024.

Let’s take a look at the weekly standard deviation report published in Marketplace section and see what short term trading opportunities we can identify for next week

GOLD: Weekly Standard Deviation Report

Feb. 03, 2024 12:02 PM ET

Summary

• Weekly trend for gold futures is bearish, but a close above the 9-day SMA could shift it to neutral.
• Price momentum is also bearish, but a close above the VC Weekly Price Momentum Indicator could turn it to neutral.
• Profit-taking and reversal strategies suggest taking profits at specific levels depending on position.

1. Weekly Trend Momentum: The weekly trend for gold futures is currently considered bearish because the market has closed below the 9-day Simple Moving Average (SMA) at 2048. A close above this 9-day SMA would shift the weekly trend from bearish to neutral.

2. Weekly Price Momentum: The price momentum is also bearish as the market has closed below the VC (Volume Confirmation) Weekly Price Momentum Indicator at 2058. A close above this indicator would turn the short-term trend from bearish to neutral.

3. Profit-Taking and Reversal Strategies: If you have a short position, consider taking profits when the market corrects at the levels of 2033-2013. If you have a long position, be prepared to take profits as the market reaches the levels of 2078-2103 during the month.

4. Stop Orders: If you are in a long position, use the 2013 level as a Monthly Stop Close Only order and a Good Till Cancelled order.

5. Next Cycle Date: The next cycle date to watch for is 2.15.24, which might have significance for your trading strategy.

6. Strategy Summary: In summary, if you are long on gold futures, look to take profits in the range of 2078-2103. If you are short, consider taking profits when the market corrects in the range of 2033-2013.

Please note that trading carries inherent risks, and it’s important to do your own research and consider your risk tolerance before implementing any trading strategies. Additionally, market conditions can change rapidly, so it’s essential to stay updated with the latest information and adjust your strategy accordingly.