Gold struggles as rate cut expectations fade and USD strength persists: Know what are the key levels to watch? – CaFE Invest News

By Bhavik Patel

Although gold has managed to hold its own in the first two weeks of 2024, it is finding it difficult to prompt a rally with expectation of rate cut in March diminishing. Market is still overstretched and is expected to decline as higher prices take their toll on physical demand, weighing on jewelry and bullion sales.

Strength in USD has been also one of the main forces for gold falling for continuous seven trading sessions. The biggest driver for the greenback remains the Federal Reserve’s restrictive monetary policy. Markets were too aggressive in pricing in expected rate cuts this year.

If the market proves to be too optimistic on easing, it could provide new bullish momentum for the U.S. dollar. Despite stubborn inflation, markets still see a more than 60% chance of a rate cut at the March meeting. But the comment from Fed members and recent inflation data says otherwise. While gold could be vulnerable to some selling pressure in the next few months, we do see a limit to the downside.

Central bank demand have been relatively strong and expected to remain so in 2024 giving support to prices. Geo political concerns in Middle East are not expected to subside any time soon with chances of spillage which will also boost safe haven demand for precious metals.

Lastly Fed will cut rates in second half of the year by atleast 75 bps which is always positive for gold in long run. So the pullback in gold is expected to bottom out between 60000-58000, which will be golden opportunity for investors to accumulate gold and hold for 2024.

Gold in MCX has been falling for seven straight trading session. The trend is bearish as it is trading below 20-day moving average. Momentum Oscillator RSI_14 is also trading at 48 suggesting contraction.

The previous swing support around 61300-61000 during 12 December 2023 seems to be immediate support and we can expect any fall around that level to be well supported and trigger for taking long positions around that level.

62500 seems to be strong resistance and if gold manages to break that level next week then we will see next leg of rally till 63100. We expect prices to bounce slightly as prices have been drifting down for one straight week but any upside will be limited owing to weak fundamentals.

(Bhavik Patel is a commodity and currency analyst at Tradebull Securities. Views expressed are the author’s own. Please consult your financial advisor before investing.)