Gold: What Next, After a Wobbly Week?

Upon analyzing movements in gold futures in the wake of a bearish tone in Dollar Index futures following an extended weekend, it is evident that challenging times lie ahead for gold bulls striving to retest the peak established on December 1, 2023.

Certainly, the price movement since Friday appears to serve as a preliminary indicator of sustained selling pressure this week, despite the formation of a 'bullish crossover' in the daily chart last Friday.

Today’s trading session confirms the increasing selling pressure as gold still is in overbought territory, resulting in the formation of a ‘Hanging Man’ which is likely to turn into an ‘Exhaustion’ candle in today’s session. This will define the continuation of a steep slide during the rest of the week.

Despite a bumpy move by gold bulls on Monday, big bears are still in command above $2064. This move indicates that if gold futures find a breakdown below the immediate support at the 9 DMA $2053, this could push gold to retest the second support at 18 DMA, currently at $2041, during the rest of the week.

On the other hand, if the price finds a breakout above the significant resistance at $2082, followed by a sustainable move above this stiff resistance, this could extend the positive sentiment among gold bulls.

No doubt, choppy moves could follow Dollar Index futures which dipped to a five-month low on Friday ahead of the long holiday weekend, with cooler-than-expected U.S. inflation data supporting the view that the Federal Reserve could cut borrowing costs in the new year.

The dollar index was down 0.08% at 101.7 after dipping to as low as 101.42, its lowest since late July. Undoubtedly, the dollar index is on pace to finish the year down about 2%. On Friday, the dollar weakened to a nine-year low against the Swiss franc and was down 0.02%.

Growing expectations for low recession risk due to the Fed’s view on upcoming rate cuts will increase volatility for the yellow metal.

But exhaustion will set in during the weeks ahead, with the growing strength of dollar index futures.

Finally, I conclude that this receding fear of recession is likely to cause gold bears to remain aggressive till the next meeting of the Federal Reserve, scheduled for Jan. 31/Feb. 1, 2024.

It is therefore going to be interesting to see the monthly closing level of the gold futures in December 2023 and January 2024 as both the monthly candles will indicate a lot about the further directional move of gold in 2024.

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Disclaimer: The author of this analysis may or may not have any position in the Gold futures. Readers can take any long or short trading position at their own risk.