Article by: ETO Markets
Gold prices gained strong positive momentum on Monday, reversing last week's six-game losing streak on the back of renewed safe-haven demand and relative weakness in the US dollar. With the further escalation of the situation in the Middle East and the continued deterioration of the Russia-Ukraine war, the market risk aversion has increased significantly, providing support for gold. In addition, U.S. President-elect Donald Trump's policy expectations, including plans for additional tariffs and tax cuts, could create inflationary pressures and limit the Federal Reserve's room to cut interest rates further. This has also pushed Treasury yields higher, providing support to the dollar but limiting the upside for gold.
Nonetheless, the presence of geopolitical risks continues to drive flows into safe-haven assets, including gold. Fed Chairman Jerome Powell's speech last week suggested there was no rush to cut interest rates despite the current resilience of the economy and above-target inflation. This relatively cautious policy tone has further reduced market expectations of a significant rate cut by the Federal Reserve, limiting the extent of the dollar's correction and thus putting pressure on gold.
From a technical point of view, the recent pullback in gold prices stopped at the key $…-$… support zone (the 50% Fibonacci retracement level corresponding to the June-October gain and the 100-day simple moving average). This area is now becoming a key pivot point, and if the price breaks below this support, it will open room for further declines, possibly to test the psychological support at $… and further test the $… area near the 61.8% Fibonacci retracement.
On the upside, a sustained break above $… (38% Fibonacci retracement) could see significant resistance in the $…-… area. A further strengthening of buying could trigger short covering and push gold to test the $…-… range (50-day simple moving average) and even to $…-… (23.6% Fibonacci retracement). If gold continues to break above the above resistance area, it may return to the psychological round number of $…, further strengthening the bullish trend.
