Weekly Gold Outlook-02-01-2024

Current Factors Influencing Current Gold Prices:

• Gold prices increased on Thursday due to optimism that the Federal Reserve might reduce interest rates significantly later in the year, despite the central bank’s reluctance to cut rates in March.
• The Federal Reserve decided to maintain interest rates without considering a rate cut in the spring and removed the mention of potential rate hikes in the future.
• Traders are now expecting approximately 142 basis points (bps) of Fed rate cuts for the year, up from the previous estimate of about 130 bps.
• Spot gold (XAU) rose by 0.4% to reach $2,045.65 per ounce, with a previous high of $2,055.89 before closing 0.1% higher on Wednesday.
• U.S. gold futures (GC) fell 0.2% to $2,063.20.
• Futures market odds for a rate cut in March decreased to 35.5% from 90% at the end of 2023 but increased the likelihood of a reduction in May to 96%.
• China’s manufacturing activity expanded in January, boosting business confidence to a nine-month high according to a private-sector survey.
• U.S. private payrolls grew less than expected in January, with anticipation for Friday’s jobs report, expected to show an addition of 180,000 jobs last month.
• Concerns arose regarding the financial health of regional U.S. lender New York Community Bancorp after it reduced its dividend and reported an unexpected loss.
• The dollar index increased by 0.2%, while yields on benchmark U.S. Treasury notes remained near their lowest level in over two weeks at 3.9426%.
• Other precious metals also saw gains, with spot silver rising by 0.3% to $22.97 per ounce, platinum gaining 0.2% to $919.95, and palladium climbing 0.4% to $980.34.

Technical Analysis

The gold market is at a critical juncture, with the price action squeezed between a rising trendline and a horizontal resistance zone. The recent candles have shown indecision, characterized by upper and lower wicks that reflect both buying and selling pressures.

1. Resistance Zones:The immediate resistance is at $2089.377, which aligns with the recent high. A break above this level could lead to bullish momentum targeting the $2100 psychological level.The Fibonacci extension levels suggest potential targets at $2064.377 (0.786 retracement) and $2076.878.
2. Support Zones:The first level of significant support is around $2026.964, marked by previous price interactions and the 1 Fibonacci extension level.A break below this level could lead to a test of the $2009.321 area, with further support potentially at the 1.272 Fibonacci extension level near $1997.160.
3. Trendlines:A rising trendline has been providing support for the price, suggesting an uptrend. However, the narrowing of price action indicates a potential breakout.
4. Indicators:The ATR indicates elevated volatility, which is typical during times of market indecision or ahead of significant news events.The Momentum indicator is hovering near the 1.075 level, suggesting a lack of strong directional momentum.

Fundamental Context:

Today’s news injects a dose of optimism into the market, with expectations of a dovish turn by the Fed:

1. Federal Reserve’s Stance:The Fed’s reluctance to commit to rate hikes and the market pricing in potential cuts suggest a softer monetary policy outlook, which traditionally benefits gold.
2. Economic Data:Mixed signals from recent manufacturing and payroll data introduce uncertainty, which could increase gold’s appeal as a safe haven.
3. Global Economic Sentiment:China’s manufacturing expansion and the challenges faced by U.S. regional banks add layers of complexity to the global economic narrative, potentially fuelling gold’s role as a hedge.

Scenario Forecasts:

1. Bullish Scenario (40% Probability):If the Fed indicates an accommodative stance or if economic data weakens, expect gold to test and potentially breach $2089.377, with targets at $2000 if strong bullishness persistsPrice Target: $2066 – $2085Sentiment Analysis: Positive sentiment could increase to 50% in anticipation of rate cuts, reflecting a risk-off mood in the market.
2. Bearish Scenario (30% Probability):Strong economic data or unexpected hawkish Fed comments could push gold below key support at $2026.964, with an extended target near the $1997.160 Fibonacci level.Price Target: $2009.321 – $2003Sentiment Analysis: Negative sentiment might rise to 40%, driven by a strengthening dollar and higher yields.
3. Neutral Scenario (30% Probability):In the event of mixed economic outcomes or a wait-and-see approach by the Fed, gold may consolidate between $2026.964 and $2089.377.Price Target: Trading range within $2009 – $2044Sentiment Analysis: Neutral sentiment remains at 30%, signifying market indecision.

Overall Market Sentiment Forecast:

• Positive Sentiment: Increased to 50%, given the dovish Fed expectations and geopolitical uncertainties.
• Negative Sentiment: Adjusted to 40%, due to the possibility of gold-unfriendly economic surprises.
• Neutral Sentiment: Maintained at 30%, reflecting ongoing caution among market participants.

Target Levels and Analysis---2026 or 2061

Dual Price Target Zones

Bullish Scenario: Given a 40% probability, the market could lean towards the upper price target zone ($2061-$2070) 

Bearish Scenario: With a 30% probability, the focus shifts towards the lower price target zone ($2026-$2009) 

Strategy Implementation:

• Entry Point Selection:Consider entering positions near the lower end of each target zone to capitalize on potential price rebounds or breakthroughs. Specifically, aim for entry points close to $2061 and $2026, aligning with supportive technical and fundamental indicators.
• Stop-Loss Orders:Place stop-loss orders slightly below the nearest support levels to mitigate risks. For positions targeting the upper zone, place stop-losses below $2061, considering the next support at $2026. For the lower target zone, set stop-losses below $2009, respecting the Fibonacci level at $1997.160.
• Profit Targets:Set initial profit targets within the respective target zones, but be prepared to adjust based on market sentiment and emerging technical patterns. For the upper zone, aim for profits near $2070, and for the lower zone, target the upper end near $2009.
• Sentiment Monitoring:Continuously assess market sentiment and be ready to adjust the strategy. Increase the bullish position if positive sentiment rises above 50% or reduce exposure if negative sentiment escalates.
• Risk Management:Allocate capital to each scenario based on its probability and your risk tolerance. Given the uncertain market conditions, consider a balanced approach, diversifying between bullish and bearish positions to hedge against volatility.

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Disclaimer: This is not an Investment Advice. Investing and trading in currencies involve inherent risks. It’s essential to conduct thorough research and consider your risk tolerance before engaging in any financial activities.