Gold Supported by Fundamentals, Testing Key Technical ResistanceTechnical Analysis
Gold is trading at $2,719, approaching a critical resistance level at $2,735 (Fib 0.786). A breakout above this resistance could pave the way for further upside toward $2,743 and $2,758, marking significant levels for long-term trend continuation. On the daily chart, the price has held firmly above the 50-day SMA, supported by a bullish RSI, indicating the potential for continued strength.
- Key Resistances :
- $2,735 (Fib 0.786).
- $2,743 and $2,758.
- Key Supports :
- $2,700 (short-term support).
- $2,693 (Fib 0.618).
In the short term, gold has encountered resistance at $2,720 and shows signs of a possible pullback. The RSI in the overbought zone suggests that a correction toward $2,700 and potentially $2,693 is likely before any continuation to the upside.
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Fundamental Analysis
Gold prices remain near two-week highs, supported by geopolitical tensions, central bank buying, and expectations for the Federal Reserve's (Fed) monetary policy. Markets are now pricing a 95% chance of a 25 bps rate cut by the Fed next week , per the CME FedWatch tool, with a further 22% chance of another cut in January.
Key Developments Driving Gold:
1. Chinese Central Bank Gold Buying:
The People's Bank of China resumed gold purchases in November, adding 160,000 fine troy ounces to its reserves. This significant move has bolstered global gold demand and added upward momentum to prices.
2. Middle East Geopolitical Tensions:
The collapse of the Syrian government and subsequent military actions by Israel have increased investor interest in gold as a safe-haven asset.
3. US Inflation Data (CPI):
November's CPI data showed a 2.7% YoY increase, aligning with expectations and reinforcing the case for rate cuts. The core inflation rate remained stable at 3.3%. These figures have kept gold's bullish momentum intact.
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Upcoming Data to Watch
The Producer Price Index (PPI) for the US, scheduled for release tomorrow, will provide further clues about inflation trends.
- Forecasts:
- Core PPI m/m: 0.2% (previous: 0.3%).
- PPI m/m: 0.2% (previous: 0.2%).
- Unemployment Claims: 221K (previous: 224K).
Potential Scenarios for PPI:
1. Stronger-than-expected PPI (above 0.2%):
Higher PPI could indicate persistent inflationary pressures, potentially boosting the US Dollar and pressuring gold prices lower. In this case, gold may test short-term supports at $2,700 or $2,693.
2. Weaker-than-expected PPI (below 0.2%):
A weaker PPI could further strengthen the case for Fed rate cuts, weakening the US Dollar and providing additional upside for gold. A breakout above $2,735 would open the path toward $2,743 and $2,758.
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Conclusion
Gold remains strong in the long term, with $2,735 as a critical resistance level. A breakout above this level could trigger a rally to $2,743 and $2,758. However, in the short term, the price is expected to correct to $2,700 or $2,693 before resuming its uptrend. The upcoming PPI report is pivotal and will shape market sentiment ahead of the Fed's rate decision next week.
Recommendation
Monitor the PPI report and Fed commentary closely. A pullback to $2,700 may offer a buying opportunity, with targets set at $2,743 and $2,758 if bullish momentum persists.
