Gold’s shine dampened by stronger dollar

طلا closed in the reds last week, pressured by stronger than anticipated US economic data و hawkish remarks which propped up the dollar and secured vital inflows, all at the expense of the bullion. Furthermore, elevated bond yields provided a more appealing alternative for investors, in contrast to the non-interest-bearing bullion. This week, fundamentals are expected to take over and precious metals traders await in patiently for the Fed’s meeting minutes alongside a slew of crucial financial releases that could give them a glimpse on where the precious might head towards to next. In this report, we aim to shed light on the catalysts driving the precious metal’s price, assess its future outlook and conclude with a technical analysis.

FOMC meeting minutes are incoming

In tomorrow’s session, the market is expected to turn its attention towards the latest Fed meeting minutes which could contain further clues on how the central bank is to proceed with its tightening efforts, after last week’s inflation and retail sales data updates. Of critical importance are also the speeches from various Fed speakers who would shed light on how they might vote in the coming interest rate decision alongside their views on where they see the terminal rate being going forward. The dollar rose last week, buoyed by better-than-expected economic data and managed to climb to fresh six-week highs, and gold extended its fall from its 9-month highs due to the negative correlation between the two. More specifically, the latest inflation report showcased that, inflationary pressures, albeit easing, remain much stickier than what the market anticipated and as a consequence provided more support to the Fed’s case that more hikes are needed to bring it under control. Combine that with the highest rise in producers’ prices in seven months, according to the latest PPI results, added more credibility to the case for additional interest rate increases to cool an overheated US economy. Furthermore, another strong retail sales estimate beat, aided the dollars to ascend, as robust consumption levels paired with a resilient employment market run the risk of pumping the inflationary bubble further. That in a sense adds once again more confidence in the central bank’s view to keep hiking rates in order to deter inflationary pressures from becoming deeply entrenched within the US economy. Overall, the prospects for more hikes by the Fed tend to provide support for the greenback but dampen the shiny metal’s appeal in the eyes of investors. Should, therefore, the contents of the latest meeting minutes broadcast hawkish undertones we would reasonably expect to see weakness in the bullion and inflows towards the dollar.

PCE and GDP metrics are due out later this week

Looking past the Fed’s meeting minutes, the market’s attention narrows on the final GDP estimate for the fourth quarter on Thursday, alongside the US central banks’ favourite inflation metric the core PCE index on Friday. According to estimates, the final GDP rate for Q4 is expected to match the previous reading of 2.9%, which could bring some weakness to the US dollar and may in turn provide support for the shiny metal, should the actual rate match the expectation. When it comes to the Core PCE index, the market forecasts that the rate will ease to 4.3% when compared to the previous reading of 4.4%. Should the actual rate meet the expectations, we may see the dollar weaken and the precious being lifted from its recent trough, as the results would practically reaffirm that inflationary pressures eased further in the month of January and could put more faith in the market’s assessment that the Fed will slow down its hiking pace. Nevertheless, should on the other hand, the results fail to meet expectations and the Core PCE index records an upside surprise, we may see the precious extend its fall towards levels once seen before in December of 2022, as the dollar receives inflows. Noteworthy are also the scheduled speeches by the New York Fed President Williams and Atlanta Fed President Bostic tomorrow alongside Fed Board Governor Jefferson and Cleveland Fed President Mester on Friday which could tarnish the precious should the envoys reiterate their hawkish narratives.

تجزیه و تحلیل فنی

XAUUSD H4 Chart

• Support: 1820 (S1), 1800 (S2), 1780 (S3)
• Resistance: 1845 (R1), 1860 (R2), 1845 (R3)

Looking at XAUUSD 4-hour chart we observe gold’s price sliding to the lower ground over the past week as the dollar perked up, supported by better-than-expected economic data results. We hold a bearish outlook bias given the formation of a descending channel, which validates the view for the extension towards the downside. Supporting our case is the RSI indicator below our 4-hour chart which failed to move above the 50 levels over the past two sessions and is currently registering a value of 42, showcasing slight bearish sentiment currently surrounding the bullion. Should the bears capitalize on the negative momentum, we may see the price action break below the $1820 (S1) support level and move lower, closer to the $1800 (S2) support base. Should the bulls take over, we may see the break above the upper bound of the descending channel, the break of the $1845 (R1) resistance level and the move closer to the $1860 (R2) resistance barrier.

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