The recent surge in gold prices has been nothing short of spectacular, driven by a confluence of positive factors. Real yields, which have a strong negative correlation with gold, have been on a downward trajectory thanks to softening US economic data. This has led to a decline in inflation expectations and Treasury yields.
However, there are signs that the market might be getting a little ahead of itself. The current rate pricing suggests that the Fed is likely to cut rates five times in 2024, which is an aggressive stance. While further data deterioration could easily justify such cuts, it's important to remember that the Fed could also reverse course if the data improves.
Despite the potential for a near-term pullback, the overall bias for gold remains bullish. Dips are likely to be met with strong buying interest, as investors continue to seek refuge in the precious metal during times of economic uncertainty.
Technical Analysis
Daily: The daily chart shows a sharp spike higher in the APAC session today, followed by an equally sharp reversal. This "outside bar" candlestick pattern could be a warning sign for bulls, as it often indicates a trend reversal.
4-hour: The 4-hour chart reveals another minor trendline around the 2040 level. Buyers could consider entering long positions here and at the major trendline, as it's unclear which level will hold first. Sellers, on the other hand, should look to enter short positions on breaks below either trendline, with a break below the major trendline potentially triggering a selloff towards the 1930 level.
1-hour: The 1-hour chart provides a closer look at the recent price action. After the initial spike and subsequent reversal, the price is currently stuck in "no man's land." Both buyers and sellers should wait for the market to approach key levels before taking new positions.
Upcoming Events
This week will be filled with important US labor market data, culminating in the highly anticipated Non-Farm Payroll (NFP) release on Friday. Other key data points to watch include the ISM Services PMI, Job Openings, ADP Employment Change, and Jobless Claims. As usual, weak data will likely boost gold prices, while strong data could lead to pullbacks.
Overall, while the gold rally might be showing signs of overextension, the fundamental backdrop remains supportive. Investors should keep a close eye on the upcoming economic data and technical levels to navigate the potential for short-term volatility.
