Gold prices have started the week on a positive note as the Fed members show a somewhat dovish tint in their tone. Although most of the important events for the US economy are over for this year, such as the CPI data and the FOMC meeting, which all have significant influence on the dollar index and impact the gold price, But traders will still be looking for two more events that will unfold this week and give us more clues in terms of the direction of the gold price.
Background
After strong US NFP data, better-than-expected inflation data, and a somewhat dovish tone from the Fed, gold traders strongly believe that tailwinds are in their favour for the gold price to continue to move higher in the remaining days of 2023. Basically, the Fed has sent a signal to the market players that they are satisfied with the progress that they have achieved in terms of inflation, and rate cuts are coming in 2024. After the recent FOMC meeting, market players believe that there are strong chances that we will see at least 5 rate cuts in 2024 by the Fed, and each of them will be 25 basis points, which means nearly a rate cut of 125 basis points.
Word of Caution
I believe that traders need to be a bit more careful in their approach given the current optimism that we have in the market about gold prices and the Fed's monetary policy. The fact is that this is not the first time that the Fed is going to reduce the interest rate or adopt a dovish monetary policy. In previous rounds, market players were overly enthusiastic about their expectations and the movement in the dollar index, which would result as a result of the dovish monetary policy. Yes, it is true that the dovish monetary policy is generally bullish for the gold price, but traders should not expect the price to go through the roof. What I mean by this is that there are strong chances that the price will continue to move higher in 2024, but I do not believe that the price gains will be enormously significant as traders will favour other riskier assets, which means there will be more money flow in equities, and that may take some shine away from gold.
The two events
Focusing on more near-term events, the ones that matter the most are consumer sentiment data on Wednesday and the final GDP q/q on Thursday. Both of these numbers are going to be watched very closely by traders. Investors will like to see an uplift in the consumer confidence number and a more encouraging number for the US GDP. The expectations for consumer confidence are at 104, while the previous one was at 102. As for the US GDP q/q, the forecast is still for the number to stay at 5.2%.
The most important thing will be to keep an eye on the highs and lows put in by the price over the weekly time frame. Although the immediate support will be around the 2K price mark, the more meaningful will be at the 1972 price mark, while the resistance will be at 2048, which could easily be broken if the numbers suggest that the Fed will be dovish next year with a rate cut as early as the end of Q1. The chart below shows the highs and lows put in by the price last week, which will serve as resistance and support.
Gold Trading Chart by AvaTrade