Article by: ETO Markets
Gold prices rose for the fourth consecutive day, hitting a one-and-a-half-week high ($2,660), mainly driven by the geopolitical risks of the Russia-Ukraine conflict. Russian President Vladimir Putin's decision to lower the threshold for a nuclear strike has exacerbated risk aversion in the market, and traditional safe-haven assets such as gold have benefited significantly. At the same time, the market expects that the expansionary policies of US President-elect Trump (such as tariffs) may bring inflationary pressure, which provides further support for gold. However, high inflation may also limit the Fed's room for monetary easing and cause US Treasury yields to remain high, thus exerting some pressure on gold prices.
In addition, the recent cautious remarks of many Fed officials have also increased market concerns about further rate cuts, which has provided support for the US dollar. According to the CME FedWatch tool, the market currently believes that the probability of the Fed cutting interest rates in December is only slightly higher than 50%. Although the US dollar is stable below its highs for the year, higher US Treasury yields and risk appetite in the stock market may limit further gains for gold. The focus for the rest of the week will be on US economic data (including initial jobless claims, the Philadelphia Fed manufacturing index and existing home sales data) and speeches by Fed officials, which may affect the trend of gold and the US dollar.
From a technical perspective, gold prices are currently encountering resistance near the 50% Fibonacci retracement level ($…), and if it breaks above this level, it may rise further to the resistance range of $…-$…. If sustained buying pushes gold prices above this resistance range, it may further test the psychological level of $…, which will mark the continuation of the recent rally.
On the downside, initial support is located at the 38.2% Fibonacci retracement level ($…-$…) and the $…-$… area, and if it falls below this level, it may further fall to the round mark of $…. If gold prices fall further below $…, it will face more pressure on gold prices, and downside targets include $…, where the 100-day simple moving average (SMA), and last week's low of $…-$… area, breaking this area will open up space for deeper declines.
