{x} | Trading.live

Summary: As gold prices surge to historic highs, a watchful or declining trend in trading is expected to be the main tone in the short-term market.

Fundamentals

As the market enters the final stages of 2023, the gold market is once again shining. After setting a monthly closing record in November, gold prices reached a new all-time high of $2147 per ounce early on Monday, followed by a correction.

This surge in gold prices represents the continuation of a two-month upward trend. The rapid rise in gold prices was initially triggered by the conflict between Israel and Hamas, which intensified global geopolitical tensions and spurred investors to seek safe-haven assets, thereby boosting demand for gold.

Meanwhile, the growing expectations of major central banks worldwide easing monetary policies further fueled the rise in gold prices. The Fed and some other major global central banks, including the European Central Bank, are expected to implement interest rate cuts in the coming year. This speculation is a key factor in the current dynamics of the gold market, as lower interest rates typically reduce the opportunity cost of holding non-interest-bearing assets like gold, making them more attractive to investors.

Equally interesting is that the market is no longer heeding the central banks' opinions, as Fed Chairman Powell has been quite clear in stating that rates will not drop quickly. However, the market always has foresight. Just as investors often hear Powell say, "Policy tightening will depend on the data." However, the current data is all pointing (betting) towards rate cuts.

This data-driven policy direction is rapidly spreading in the market, so investors don't actually need the Fed to start cutting rates to drive the trend in gold; they just need to anticipate such a move. People buy gold because they believe the downward pressure on interest rates is imminent. The worst-case scenario is that the Fed maintains higher rates for a slightly longer period than expected. However, ultimately, the next move will be a cut. This is the perspective investors should take in assessing the current market environment.

Technical Analysis

Last Friday and this Monday, gold experienced a remarkable trajectory. On Friday, nearing the closing, amid reduced risk appetite and decreased liquidity, prices rose to $2,075. On Monday, gold touched $2,145, marking a historic high.

The trend structure on Friday and Monday indicates that the bears have been thoroughly flushed out of the market. As liquidity is restored, the price retreated to the $2,060 range, which remains an extreme territory.

In bullish technical signals, the 50-day SMA crossing above the 200-day SMA forms a bullish continuation pattern. Furthermore, the price above this crossover point reinforces the bullish signal.

However, due to the significant stop-loss space, it is quite risky for both bulls and bears. For the bulls, the relative strength index (RSI) in the daily chart is hovering in the overbought zone, posing correction risks. For the bears, the market is currently in a bullish trend, indicating a solid foundation for further price increases. In summary, the mid-term upward trend remains intact, but there is also a risk of a correction.

The previous three times that gold made highs - in 2011 and three times in the last three years - it went into a sharp and deep correction that lasted for years in the first case and months in the aftermath of the pandemic. Considering reduced inflation concerns and the attractive yields of gold's main competitor, bonds, the latter scenario seems more likely to occur.

Technically, with the $2,081 level (the last of the three highs in the past three years) being thoroughly flushed out of the market, an expectation for a continuous decline is anticipated after the short-term rise. However, as long as the bulls can hold the $2,009 resistance-turned-support level, the future outlook remains bullish, with potential for further rebound. A sustained breakthrough of $2,130.39 will pave the way for the 161.8% Fibonacci retracement at $2,253.

Trading Recommendations

Trading Direction: Short

Entry Price: 2072

Target Price: 2016

Stop Loss: 2110

Valid Until: 2023-12-18 23:55:00

Support: 2075, 2058, 2052, 2031

Resistance: 2076, 2082, 2090, 2098