Credit: Original analysis by Haresh Menghani, FXStreet
Title: Gold Maintains Bullish Momentum Amid Dollar Weakness and Geopolitical Uncertainty
Gold continues to trade on strong bullish momentum as the broader market sentiment leans in favor of safe-haven assets. The sustained upward trajectory has been underpinned by several fundamental and technical drivers, including a softening US dollar, expectations for interest rate cuts, sticky inflation data, and ongoing geopolitical tensions. Gold prices recently pushed through key resistance levels, maintaining upward pressure as market participants price in the Fed’s potential policy shift and global macroeconomic risks.
This article provides a comprehensive view of the current gold market from both the technical and fundamental perspectives, outlining the possible trajectory in the short to medium term. It expands upon insights provided by Haresh Menghani for FXStreet while offering a deeper exploration of the dynamics shaping gold’s performance.
1. Overview: Gold in a Bullish Structure
Gold recently extended its upward move, consolidating its position above the $2,000 psychological mark and sustaining prices near multi-week highs. The precious metal has shown resilience and strength in the face of various macro events that traditionally would lend support to the US dollar, but have instead driven demand for gold.
Key highlights:
– Gold remains supported by dovish expectations from the Federal Reserve.
– Safe-haven demand persists amid geopolitical instability, particularly in the Middle East and Eastern Europe.
– Technical structure continues to favor the bulls following a clean breakout above a multi-day resistance zone.
The price action has entered a consolidation phase, allowing the market to digest recent gains while maintaining potential for a fresh impulsive leg to the upside.
2. Fundamental Drivers Supporting Gold’s Upside
Gold’s attractive outlook is being powered by a variety of macroeconomic factors that have bolstered demand and lifted the metal’s appeal as both a hedge and a strategic investment.
Interest Rate Expectations
– The Federal Reserve has signaled a data-dependent approach for the rest of 2024, but market participants are increasingly pricing in rate cuts starting in the second half of the year.
– The CME FedWatch Tool has reflected rising probability for at least two rate cuts in 2024 as inflation shows signs of moderation while growth risks remain elevated.
– Lower interest rates reduce the opportunity cost of holding non-yielding assets like gold, making the metal more appealing.
US Dollar Weakness
– The US Dollar Index (DXY) has shown signs of retreat after months of strength, largely due to shifting expectations around monetary policy.
– A softer dollar makes gold more affordable for holders of other currencies, increasing its global demand.
– Solace in metals like gold has historically matched periods of dollar retreat, particularly during global uncertainty.
Inflation and Mixed Economic Data
– Recent data from the United States has offered a mixed view of the economy. Job growth is slowing, purchasing managers’ indexes are diverging, and inflation remains above the Fed’s 2 percent target.
– Gold acts as a traditional hedge against inflation, and continued concerns over price instability have lent strong support to the metal.
– Real yields may weaken if inflation persists and rate cuts begin, making gold’s appeal even stronger.
Geopolitical Tensions
– Conflicts in Gaza, Ukraine, and rising tension in the Taiwan Strait all contribute to global uncertainty.
– Historically, such geopolitical instability prompts inflows into safe-haven assets like gold as investors look to shield their portfolios from systemic risks.
– Central bank purchases, particularly among emerging markets and countries seeking to de-dollarize, also remain stable and supportive of gold.
3. Technical Outlook: Bulls Hold the Upper Hand
Technically, the price of gold is positioned in a bullish formation, having broken above previous resistance zones and staying comfortably above key moving averages. The recent consistent higher highs and higher lows are a clear sign of the upward pressure dominating the market.
Current levels and indicators:
– Gold is trading above its 50-day and 200-day simple moving averages, both of which
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