Gold Price Analysis: Pullback from Three-Month Highs
The gold price is currently experiencing a pullback from its recent three-month highs, just below the all-time peak of $2,790. This retreat comes as traders turn cautious in anticipation of significant events that could impact the market, particularly focusing on US President Donald Trump’s trade policies and the upcoming US Federal Reserve (Fed) policy announcements.
Factors Influencing Gold Price Movement
- Pre-Fed Profit-Taking: Traders are resorting to liquidating their long positions to secure profits, especially after the gold price fell just short of record highs. This profit-taking activity is contributing to the current pullback.
- US Dollar Resurgence: The resurgence in demand for the US Dollar as a safe-haven currency, driven by fears of a global trade war, is also weighing on the gold price. This strong dollar is capping the upside potential for gold.
- Trade War Concerns: Recent developments, such as President Trump’s imposition of tariffs on Colombia and plans to impose tariffs on Mexico and Canada, are adding to the risk-off sentiment in the market. These geopolitical tensions are impacting both the greenback and the gold price.
- Weaker Chinese Manufacturing Data: An unexpected contraction in China’s manufacturing sector, as indicated by the January PMI data, is further contributing to the risk-off environment in the market.
Technical Analysis of Gold Price
The daily chart analysis of the gold price reveals a constructive short-term outlook, despite the recent retracement from near record highs. Key technical points to consider include:
- Symmetrical Triangle Breakout: The gold price recently achieved the symmetrical triangle target at $2,785 but failed to maintain a daily closing above this level. This failure prompted some buyers to adopt a wait-and-see approach.
- Relative Strength Index (RSI): The 14-day RSI has turned lower from the overbought region, signaling a potential dip-buying opportunity for gold.
- Moving Averages: The 50-day SMA crossed above the 100-day SMA, confirming a Bull Cross and adding credence to the bullish potential for the gold price.
To reach new record highs above $2,790, the gold price must secure a daily closing above this level and aim for the psychological resistance level at $2,850. On the downside, immediate support levels are seen at $2,736 and $2,700, with the 21-day SMA at $2,686 providing additional support.
Gold FAQs
Key Information About Gold
- Historical Significance: Gold has played a vital role throughout history as a store of value and medium of exchange. It is also considered a safe-haven asset, particularly during turbulent times, serving as a hedge against inflation and depreciating currencies.
- Central Bank Holdings: Central banks hold significant amounts of gold in their reserves to support their currencies during economic uncertainties. The addition of gold to reserves can enhance the perceived strength of a country’s economy and currency.
- Market Correlations: Gold exhibits an inverse correlation with the US Dollar and US Treasuries, serving as a diversification tool for investors during market fluctuations. It is also inversely correlated with risk assets, with its price influenced by geopolitical instability and economic factors.
- Price Drivers: Various factors, such as geopolitical events, economic indicators, and currency movements, can impact the price of gold. Its price is often influenced by the behavior of the US Dollar, as gold is priced in dollars (XAU/USD).