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Pressure at 4500! Gold to Correct to Around 4200
Summary:
Investors are still digesting the recent U.S. strikes on Venezuela. The underlying bullish sentiment has also become a key factor triggering profit-taking in precious metals. However, escalating geopolitical tensions and market expectations of a dovish stance from the Fed appear to be limiting gold's downside potential.
CLOSED
4464.48
ENTRY
4100.00
TGT
4600.00
SL
4509.15 +31.36 +0.70%
1998
Points
Profit
4100.00
TGT
4444.50
CLOSING
4464.48
ENTRY
4600.00
SL
Fundamentals
Earlier this week, U.S. President Trump made confrontational remarks about Colombia and Mexico, and then threatened to annex Greenland. In addition, traders have been pricing in expectations of two more rate cuts by the Fed. Nevertheless, this failed to sustain the U.S. dollar's previous day's rally; instead, it may offer some support to non-interest-bearing gold. Traders may also choose to wait for the release of key U.S. macroeconomic data, including the non-farm payroll report due on Friday.
Furthermore, factors such as the lack of progress in the Russia-Ukraine peace talks, the volatile situation in Iran, and the Gaza issue have heightened geopolitical risks, which may underpin the price of gold—a traditional safe-haven asset. Holdings of SPDR Gold Trust, the world's largest gold ETF, rose by 2 tons from the previous day to reach 1,067.13 tons currently.
In terms of institutional views, Morgan Stanley forecasts that gold prices are expected to climb to $4,800 per ounce by the Q4 of this year, surpassing the previous record high. The bank pointed out that the main drivers behind the upward trend of gold prices include the downward interest rate trend, expectations of a leadership reshuffle at the Fed, and the sustained allocation demand from central banks and institutional funds.
The latest economic data showed that the expansion pace of the U.S. service sector slowed down. The S&P Global U.S. Services PMI final reading for December came in at 52.5, down from the prior reading of 54.1 and the market consensus of 54, hitting an eight-month low. Sub-item data indicated that the growth rate of new orders fell to a 20-month low, with businesses widely citing demand uncertainties caused by tariff policies and weakening consumer spending momentum. Meanwhile, affected by trade frictions, export orders recorded the sharpest decline since May. Additionally, due to falling capacity demand and budget constraints, employment scale saw a slight contraction for the first time in nine months, reflecting signs of moderate slowdown in economic momentum.
On the monetary policy front, recent remarks from Fed officials have highlighted their cautious attitude towards future interest rate adjustments. Thomas Barkin, President of the Fed Bank of Richmond, noted that future rate decisions need to be more refined to strike a balance between curbing inflation and avoiding a significant rise in the unemployment rate. Further, Fed Governor Michelle Bowman stated that more than 100 bps of rate cuts may be needed in 2026. Currently, interest rate futures markets still reflect traders' expectations of two rate cuts in 2024. However, the probability of a rate cut at the January meeting is only around 16.1%, indicating that the market remains cautious about a near-term policy pivot.
Technical Analysis
On the 1-hour chart, the Bollinger Bands are contracting and narrowing, with moving averages flattening out, suggesting that a trend reversal could occur at any time. In the short term, gold may still test the levels around 4485 and 4500. If it fails to break through the new high, it is highly likely to drop to around the EMA200, with the price hovering near 4288. The MACD has formed a bearish crossover, and upward momentum is gradually weakening. The fast and slow lines are pulling back towards the zero axis, indicating that the correction is drawing to a close. The RSI stands at 49, placing the market in a neutral consolidation zone.
On the 15-minute chart, after breaking below the lower Bollinger Band, the price rebounded quickly to around the middle Bollinger Band. The MACD has formed a bullish crossover, with the fast and slow lines pulling back towards the zero axis but still remaining some distance away, suggesting that the rebound is not yet complete. The RSI is at 49, reflecting investors' indecision in the market. Therefore, the proposed trading strategy is to go short first and then long.
Trade Recommendations
Trade Direction: Sell
Entry Price: 4485
Target Price: 4100
Stop Loss: 4600
Support: 4200/4100/3800
Resistance: 4530/4550/5000
Risk Warnings and Investment Disclaimers
You understand and acknowledge that there is a high degree of risk involved in trading with strategies. Following any strategies or investment methodologies is the potential for loss. The content on the site is being provided by our contributors and analysts for information purposes only. You alone are solely responsible for determining whether any trading assets, or securities, or strategy, or any other product is suitable for you based on your investment objectives and financial situation.
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