XAU/USD rides uptrend to $2032 amid weak USD. Fed’s rate caution boosts gold; eyeing resistance at $2055, $2070, supports at $2012, $2000.
- Gold prices are trading higher for the sixth consecutive session, riding a wave of US dollar weakness, which has fallen sharply over the same period.
- The weak US dollar makes it cheaper for foreign investors to buy the dollar-denominated precious metal, boosting demand for it.
- Technically, today’s gold price gains reached the resistance level of $2032 per ounce.
Clearly, this recovery was tested with the release of the minutes of the Federal Open Market Committee (FOMC) meeting. The minutes echoed statements by Fed officials who argue against early cuts in US interest rates. As the US dollar and yields could rebound, which could in turn be negative for bullion and halt its streak of gains.
In general, traders closely watched the minutes of the recent Federal Reserve meeting, which showed that officials are in no hurry to lower US interest rates. In the minutes of the January 30-31 meeting released yesterday, most Fed officials also said they were concerned about moving too quickly to cut the benchmark interest rate before it was clear that inflation was returning sustainably to its 2% target. Moreover, there were only two “members” who were concerned about the opposite risk — that the Fed might keep U.S. interest rates too high for too long and cause the economy to weaken significantly or even slide into recession.
Meanwhile, some officials pointed to the risk that progress toward price stability would stall, especially if aggregate demand strengthens, or that progress in improving supply chains might falter. Also, officials pointed to disruptions in shipping in the Red Sea, caused by conflict in the Middle East, as a trend that could lead to an acceleration in prices. Generally, the sentiments expressed in yesterday’s minutes help explain the Federal Reserve’s decision last month to indicate that its policymakers will need more confidence that US inflation is under control before cutting the key interest rate. At the January meeting, the US Federal Reserve decided to keep the key interest rate unchanged at about 5.4%, the highest level in 22 years, after 11 interest rate hikes starting in March 2022.
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Swiss gold exports rose in January to their highest level since December 2016, according to customs data. Monthly export volumes from the world’s largest refining and bullion transportation hub increased by 49% compared to last year, driven by strong sales to China and Hong Kong. The “Year of the Dragon” has led to increased demand for jewelry as the year is traditionally seen as an auspicious one for gold purchases in China. Overall, gold prices have remained near their highest levels in several years since December. Moreover, the latest Reuters poll of analysts expects the precious metal to average $2,053.50 an ounce in 2024.
According to the performance on the daily chart above, an ascending channel has formed for the price of gold, and confirmation of bullish control over the trend will occur if prices move towards the resistance levels of $2055 and $2070 respectively. Obviously, this may happen if the weakness of the US dollar persists and geopolitical tensions increase, which supports the inclination to buy gold bullion as a safe haven. So far, buying gold from every dip remains preferable, with the nearest support levels for gold currently at $2012, $2000, and $1985 respectively.
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