AXMIN Inc (TSXV: AXM)
AXMIN Inc. (TSXV:AXM) is a Canadian-based exploration and development company with a strong focus on central and West Africa.
Last Wednesday, the Federal Reserve sent a clear signal: although the inflation rate remains well above the 2% target, they plan to cut rates three times this year. For the gold market, this is akin to firing the starting gun for a larger-scale upward movement in gold prices. While there may be a need for downward corrections in gold prices this week and in the near term, such pullbacks are healthy and do not alter the upward trajectory of gold prices.
Upon the news, the price of gold surged, reaching a historic high of over $2220 per ounce. Although the price later retraced to the beginning-of-the-week levels, the stimulus from the positive news is genuine.
Additionally, it is worth noting that the market will be closed Friday because of the Good Friday holiday, which may limit the volatility of gold prices.
James Stanley, the senior strategist at Forex.com, indicated that based on the data alone, the Federal Reserve could have left more room for itself regarding the issue of rate cuts, especially given that the unemployment rate remains at an extremely low level. However, by not choosing to do so and not only indicating a rate cut this year but also specifying the number of rate cuts, the Federal Reserve is sending a negative signal for the U.S. economy. According to market forecasts, the Federal Reserve is expected to initiate a rate-cut cycle in June, and the price of gold is expected to ultimately show an upward trend before that.
However, in the short term, it is expected that the price of gold will experience a downward correction, so investors are advised not to blindly chase higher prices. For investors who went long on gold at the beginning of the month, now might be a good time to take profits. From a technical analysis perspective, attention should be paid to the support level at $2146, but it should not be surprising if the gold price falls to $2075, as this was the resistance level that gold broke through at the beginning of March after persisting for three years.
Lukman Otunuga, manager of market analysis at FXTM, stated that although the Federal Reserve continues to signal rate cuts this year, the depth of the easing cycle still depends on the data. He explained that to support the current upward trend of gold, more negative economic data will be needed in the coming weeks and months. If this week’s U.S. economic data supports rate cuts, the gold bulls will re-enter the battlefield. However, the bears are also waiting for the next opportunity to push down the gold price. As it stands, the gold market is showing some “fatigue.”
While there is a high possibility of a correction in gold prices this week, investors should continue to focus on longer-term trends.
Naeem Aslam, the Chief Investment Officer of Zaye Capital Markets, stated that despite the significant rise in gold this month under the expectation of a Federal Reserve rate cut, there is still significant upside potential. The definition of normal interest rates by the Federal Reserve, specifically the target rate, is crucial. The Federal Reserve has hinted that pre-pandemic neutral rates need adjustment, and once this is clear, gold prices are expected to rise accordingly.
In addition to short-term technical risks, gold also faces some fundamental threats in the near term.
For instance, David Morrison, senior market analyst at Trade Nation, mentioned that the renewed strength of the U.S. dollar is bearish for gold. Last Friday, the dollar closed at a 4-week high, raising questions about whether investors are not as optimistic about the prospect of rate cuts as the Federal Reserve. This could also be a reaction to the global trend of rate cuts, such as those already announced by the Swiss National Bank.
For gold and silver investors, this could be a shakeout for the less steadfast holders, laying the groundwork for a larger upward movement to come. However, if the U.S. dollar continues to strengthen, this hopeful notion may not materialize.
