The journey of gold in 2023 has been one of notable volatility, undergoing significant fluctuations from a 15% rise in the first part of the year until May, followed by a 13% drop into October, and then a subsequent impressive 19% surge to reach an all-time high at the beginning of December. As the stage sets for Q1 of 2024, several influential factors shaping gold’s price trajectory merit consideration, forming the basis for a trading thesis that intertwines fundamental and technical considerations.
Weaker US Dollar and Declining Treasury Yields: Gold’s performance is intricately linked to the movements of the US dollar and Treasury yields. The precious metal tends to thrive when the dollar weakens, prompting increased gold purchases by foreign buyers. Moreover, gold becomes more appealing as yields drop due to the reduced opportunity cost associated with holding a non-yielding asset like gold. Despite the Federal Reserve’s contemplation of another rate hike, market sentiment leans towards a downward trajectory for the Fed funds rate. This sentiment is evident in the sharp decline in Treasury yields and the subsequent depreciation of the US dollar. Even if gold prices encounter a temporary stall, the prevailing lower trend in yields and the US dollar is poised to act as a support for XAU/USD prices.
Macro-outlook and Geopolitical Influences: The macro-outlook for the US economy introduces an element of uncertainty, with discussions revolving around two potential outcomes: a soft landing or a hard landing. In both scenarios, the expectation is for interest rates to decrease, a circumstance that traditionally supports the value of gold. Additionally, geopolitical tensions, particularly in Asia, and the continuation of existing conflicts contribute to gold’s safe-haven appeal. These factors set the stage for a robust fundamental backdrop that could bolster gold’s position in the market.
Gold (XAU/USD) Technical Considerations: Despite the bullish fundamental outlook, the technical perspective introduces a nuanced dimension. The substantial positive momentum already priced in raises concerns about the risk-to-reward ratio. In light of this, an extended pullback before evaluating bullish continuation setups is deemed favorable. Key levels of support include the zone around $2010, with a deeper pullback potentially finding support at $1956. Recognizing the historical trend of periodic pullbacks before upward continuation, there’s a reasonable expectation for another pullback in Q1 of 2024.
To the upside, levels of interest lie at $2075, and if sufficient momentum is generated, a retest of the new all-time high at $2146.79 becomes the next focal point. This trading idea underscores the importance of discipline in waiting for an opportune entry point within the ongoing bullish trend.
In summary, gold’s trajectory in Q1 of 2024 is shaped by a confluence of fundamental factors, including a weaker US dollar, declining Treasury yields, and geopolitical influences. While the technical outlook introduces complexities, a strategic approach involving potential pullbacks and key support levels is essential for navigating the evolving landscape of the gold market.
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