Article by: ETO Markets
Gold prices rose for the second day in a row, benefiting from geopolitical risks, a retreat in US Treasury yields and weak demand for the US dollar. After hitting a two-month low last week, gold prices rebounded to a one-week high ($2,626-$2,627), indicating an increase in safe-haven demand. US President Biden's approval of Ukraine's use of long-range missiles to strike targets in Russia has triggered risk aversion in the market, pushing gold prices up. In addition, the retreat in US Treasury yields has limited the rise of the US dollar, providing additional support for gold.
However, the market's high expectations for the policies that may be introduced by Trump after he is elected president, such as tax cuts and tariffs, may trigger inflationary pressures and limit the Fed's room for further interest rate cuts, thus putting upward pressure on gold prices. In addition, recent comments from Fed officials have shown a cautious attitude towards rate cuts, further supporting bullish sentiment on the US dollar or limiting the appeal of gold as a non-yielding asset. Key economic data this week include manufacturing and service PMI data, which may provide the market with more information about the economic outlook, thereby affecting gold prices.
From a technical perspective, gold prices managed to hold above the 100-day simple moving average (SMA) last week, showing some technical support. Currently, gold prices have broken through the 23.6% Fibonacci retracement level of the recent correction (near $…), providing room for further gains. However, oscillators on the daily chart have not yet fully turned positive, indicating that the upward momentum may be limited in the short term.
On the upside, gold prices may face strong resistance at the 38.2% Fibonacci retracement level ($…-$…). A breakout above this area may trigger short-covering, targeting the resistance area of $…-$…, and further towards $…-$….
On the downside, the $… mark (23.6% Fibonacci retracement level) has become a key support in the near term. If it falls below this level, it may further decline to the $…-$… support area, followed by the $…-$… area where the 100-day SMA is located. If the price of gold falls below last week’s low of $…, it may trigger more downward pressure, targeting the psychological support level of $….
