Gold’s bullish sentiment is based on fundamentals and technical studies

As of 4:30 PM ET, gold futures basis the most active February contract is currently up $7.30 (0.36%) and fixed at $2030.40. Although gold traded to a higher high than yesterday, gold has not fully regained the ground lost during Monday’s price decline. That being said, gold continues to have a bullish bias and strong support at $2015, which is based on last week’s lows.

Investors are laser-focused on upcoming economic reports, which the Federal Reserve will use to make its monetary policy decisions regarding the timing and depth of rate cuts this year. On Thursday, the Commerce Department will release its initial GDP estimate. Economists that were surveyed by the Dow Jones are forecasting that the total of all goods and services produced by the United States will have grown at a pace of 1.7% for the final quarter of 2023. This would indicate a large contraction in the GDP, the slowest since the 0.6% decline that occurred in the second quarter of 2022. 

On Friday, the Bureau of Economic Analysis will release its latest information on inflation, releasing the PCE (Personal Consumption Expenditures Price Index) for December. Expectations for the core PCE is that prices will increase by 0.2% for the month and 3% year-over-year.

The importance that data plays in guiding future decisions by the Federal Reserve was made clear by Chicago Fed President Austan Goolsbee during an interview with CNBC on Friday.

 “It’s not about secret meetings or decisions. It’s fundamentally about the data and what will enable us to become less restrictive if we have clear evidence that we’re on the path to get inflation back to target”.

Market participants are also concerned about recent escalations in the Middle East involving a coalition of the United States Britain and other countries reacting to recent attacks on military assets and merchant ships in the Red Sea. 

Technical Studies

On a technical basis, gold is trading above its 50-day simple moving average, which is currently fixed at $2024. Whether a market is trading above or below its 50-day SMA is the most simplistic way of determining a market’s bias. Gold has traded to a higher low during the last three price declines. Gold’s low of $1823 in October was followed by a low at $1938.60 on November 13, which was followed by a low of $1989 that occurred on December 13. The most recent low of $2007 occurred last week on Thursday, January 18. 

Market technicians look for a series of higher lows and higher highs, to confirm that the market is in an uptrend. Currently, gold has made a series of higher highs but had an equal closing price (but a lower price intraday) during the last peak on December 27.

Market participants are interpreting the expansion and escalation in the Middle East, as well as the upcoming pivot involving the first-rate cuts by the Federal Reserve since March 2022, as bullish factors for gold. Technical studies back up the bullish case for gold and strengthens the optimistic undertones for gold.

Wishing you as always good trading,