KEY POINTS:
- The Fed delivered on expectations cutting by 25 bps and signalling a higher bar for further rate cuts
- Fed Chair Powell sounded dovish by downplaying inflation risk and emphasising labour market weakness
- Gold broke out of the two-week long consolidation and extended the gains as momentum increased
FUNDAMENTAL OVERVIEW
Gold finally broke out of the consolidation below the 4245 level yesterday and extended the gains above the 4300 level this morning.
There was no fundamental catalyst for the move as the US initial claims came out basically in line with the recent releases and continuing claims, despite beating expectations by a big margin, were dismissed due to holiday distortion.
The rally was mostly technical as the breakout triggered stops and saw more buyers piling in to target new highs. Nonetheless, despite the Fed delivering on expectations, the dovish Fed Chair Powell tone acted as a tailwind for precious metals.
Looking ahead, the main risk events for gold will be the NFP and CPI reports next week. Strong data should weigh on the precious metal and trigger a correction, while weak figures will likely give it a further boost.
In the bigger picture, gold should remain in an uptrend as real yields will likely continue to fall amid the Fed’s dovish reaction function. But in the short term, a further hawkish repricing in interest rate expectations should weigh on the market.
GOLD TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that after breaking above the 4245 level, the buyers extended the gains into the 4280 level. The natural target should be the all-time high around the 4381 level.
If the price gets there, we can expect the sellers to step in around the all-time high with a defined risk above it to position for a drop back into the 3887 level. The buyers, on the other hand, will want to see the price breaking higher to increase the bullish bets into new all-time highs.
GOLD TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can see more clearly yesterday’s breakout. If we get a pullback into the 4245 resistance-turned-support, we can expect the buyers to step in with a defined risk below the support to keep pushing into the all-time high. The sellers, on the other hand, will want to see the price breaking lower to extend the pullback into the 4150 support next.
GOLD TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we can see that we have a minor upward trendline defining the bullish momentum on this timeframe. We can expect the buyers to lean on the trendline with a defined risk below it to keep pushing into new all-time highs, while the sellers will look for a break lower to pile in for a drop into the 4245 support targeting a break below it. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Next week we have the US NFP report on Tuesday and the US CPI on Thursday. Huge week!
