Gold Prices Holding Firm above $2,000 Mark Is Quite Telling!

Gold Prices Holding Firm above $2,000 Mark
Published on: Feb 25, 2024

Despite several Fed officials adopting a hawkish stance and reaffirming the Fed’s reluctance to immediately cut interest rates, the gold price resisted pressure last week and maintained the $2000 mark per ounce. As of 5:30 PM Eastern Time last Friday, the most active April gold futures price rose by $25.30 during the week, a 1.25% increase, with a net increase of $18.70 on Friday to $2049.40, a 0.92% rise.

From a technical perspective, escalating tensions in the Middle East and the Red Sea crisis have increased market risk aversion sentiment, guiding gold to rally on the last trading day of the week. Gold’s daily and weekly charts closed positively, particularly with the daily price being above various moving averages. Gold successfully broke through last week, with Friday’s low occurring at the 100-day simple moving average, while the daily high exceeded the 50-day moving average.

Since hitting a low of $1996 on February 14, the gold price has shown a reversal, indicating increasing bullish sentiment among market participants. If funds continue to push gold higher early this week and the closing price breaks above the 50-day moving average, gold will challenge the next technical resistance level at $2070. If $2070 is also breached, the next important resistance level will be $2100.

The strength of gold’s performance last week is not just due to price increases, but also due to its resilience in the face of the negative pressures of the Fed adopting a hawkish stance.

The Fed meeting minutes indicate that most officials believe that interest rates have peaked, are mindful of the risks of prematurely easing policy stance, and emphasize the careful evaluation of upcoming economic data to assess whether the inflation rate is continuously declining towards the long-term target of 2%. Consequently, the probability of an interest rate cut in March, as previously anticipated by the market, is almost zero.

Last Thursday, several Fed policymakers opposed raising interest rates too quickly or deeply due to the unexpectedly high inflation data in January.

The US dollar index fell by 0.31% last week, contributing to the rise in gold prices.

Macro-level factors also contributed to the rise in gold. Aakash Doshi, Head of Commodities Research at Citigroup North America, recently stated that in the next 12-18 months, the gold price could soar to $3000 per ounce. Citigroup suggests that significantly increased gold purchases by central banks worldwide, stagflation, or a severe global economic recession could all drive a substantial increase in gold. Among these, the scenario most likely to drive the price of gold to $3000 is the accelerated de-dollarization by central banks in emerging market economies.

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