(Kitco News) – Gold is under pressure from a stronger dollar and rising U.S. bond yields, but a dovish Fed outlook and new stimulus from China could support the precious metal, according to Fawad Razaqzada, Financial Market Analyst at StoneX Group.
Razaqzada noted that unlike Bitcoin, which rallied to a new all-time high above $106,000 on Monday, gold prices have been rangebound of late.
“The metal’s recent struggles underscore growing expectations of a not-so-dovish stance from the US Federal Reserve this week,” he wrote. “We have seen continued strength in US dollar and bond yields have been on the rise again lately, with the United States 10-Year rising back to 4.40% last week.”
Razaqzada said that rising yields increase the opportunity cost of holding gold, while crypto’s recent strength has also sapped demand for the yellow metal. “So, unless the Fed surprises with a dovish cut this week, or China announces more stimulus measures, gold may continue to struggle in the near-term outlook,” he said.
China could be set to deliver some fresh support for gold prices, with the country’s leadership signaling stronger stimulus to help support domestic consumer demand.
“The world’s largest consumer of gold is grappling with a struggling economy, as evidenced by weak data released last week and again this week,” Razaqzada said. “The latest data released overnight showed retail sales growth weakened to just 3.0% year-over-year, sharply below the previous reading of 4.8% and well below the 5.0% expected. Industrial production was in line at 5.4% y/y, while fixed asset investment was weaker at 3.3%.”
“While further stimulus may support growth, it might not resolve deeper structural issues,” he warned. “That said, announcements of significant measures could lift gold, particularly as the Lunar New Year approaches—a period marked by heightened jewelry demand for gift-giving traditions. Without it, jewelry demand looks set to be weaker this holiday season judging by the weak consumer data.”
Turning to the technical picture, Razaqzada said the outlook for gold “has not turned completely bearish yet” as it still shows a series of higher highs and higher lows.
“Still, the lack of any new highs since peaking at $2790 at the end of October means the bullish momentum that was prevalent in the previous months is no longer the case,” he wrote. “This makes gold a market for both the bulls and bears until a clearer directional bias emerges. With key resistance in the $2710-$2725 range holding last week, one could even argue that the short-term path of least resistance is now to the downside.”
“With that in mind, it is worth keeping an eye on gold’s support levels that have now come into focus,” Razaqzada said. “The first one is at $2645, marking the high from the price action that unfolded on Friday December 6. That’s when gold last provided a strong bullish signal in the form of a doji candle which then paved the way for a sharp 3-day rally. Gold has tested this level and has bounced. So far, so good. However, a potential close below this level would be a bearish signal.”
“If gold does break down and take out support at $2645, then this could potentially see the metal drop towards the $2600 and in doing so, take out liquidity below the recent interim low of $2613,” he added. “The $2600 level marks the bullish trend line that has been in place since the summer. Below it, $2580 would come into focus which will then need to hold to prevent a slide towards the $2500 level.”
In terms of resistance, Razaqzada pointed to the $2,710 - $2,725 range as the most important area, as gold has twice sold off after failing to breach it.
“Given that gold has moved and held below this level on the last two days of last week, we may not see another test of this level without the metal first staging a slightly deeper correction towards the levels mentioned above,” he concluded. “Therefore, a more relevant resistance level to watch is at around $2675, making the low from the bearish-engulfing candle that was formed on Thursday.”
Spot gold broke through the $2,645 support level just before 4 a.m. EST, and after failing to reclaim it just after 8 a.m., the spot price slid to a session low of $2,633.16 just before the North American market open.
Spot gold last traded at $2,642.96 per ounce for a loss of 0.37% on the day.
