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After finishing lower last week, gold has been little changed so far this week ahead of major macro events in the US. It remains in the red for the month of January and therefore the year as well. The metal had risen in the last three months of 2023, boosted by speculation that the Fed is going to start cutting interest rates sooner than it had projected in its previous dot plots. This year, we have seen a bit of hawkish repricing of the Fed’s rate cuts, and correspondingly gold has fallen as yields have bounced. A few weeks ago, a rate cut for March was almost a foregone conclusion by the market. Now, it is a coin-flip, according to the CME’s FedWatch tool.

The hawkish repricing of the Fed rate cuts has been supported by stronger data and hawkish commentary from Fed officials. Yet, this hasn’t stopped equity markets from reaching fresh record highs, thanks to the high-flying technology shares. In fact, the dollar’s recovery has been modest, and gold has given back only a little. So, there is still a good chance we may see the resumption of the bullish trend for gold once the hawkish repricing of the Fed cuts is complete. However, I won’t be pre-empting it and instead wait for the right bullish signal from the charts before looking for long setups, in light of the growing chorus of central bank officials pushing back on rate cuts.
 

What are traders focusing on this week?

Gold’s near-term direction is subject to heightened volatility this week as we have a couple of central bank meetings, namely the Bank of Japan and European Central Bank, and some top-tier data from the US. In addition, the earnings calendar this week is getting busier, keeping stock market investors on their toes after the major US indices rallied to fresh records.

Manufacturing PMIs

Wednesday, January 24

This Wednesday's global PMIs will give us a glimpse into the world economy's condition as the year kicks off. Traders could use these as a gauge for demand across various commodities. Worries about the Chinese and European economies have been a drag on commodities and indices heavy on commodities, like the FTSE 100 and China A50. On the flip side, tech-focused indices such as the Nasdaq 100 have done well, betting that the global slowdown will prompt significant interest rate cuts. Base metals, including copper, have struggled, affecting silver and, to a lesser extent, gold. Let's see what purchasing managers in manufacturing and services report for the start of the year. PMIs are seen as leading indicators and carry more weight for investors. A positive response in risk assets could boost foreign currencies against the dollar, providing support for gold.

ECB rate decision

Thursday, January 25

The upcoming rate decision by the ECB could have an impact on gold. If the ECB is more dovish than expected, then you would think European bond yields would slip, and that in turn would underpin assets with low and zero yields like gold and silver. But the market is positioned for a hawkish ECB after several officials last week tried to push back against early rate cuts, mirroring the Fed. While in the case of the US, the pushback is mainly because of a relatively stronger economy, elsewhere – especially in the UK and Eurozone – it is all about concerns about inflation remaining sticky, with wage pressures continuing to remain elevated. ECB President Christine Lagarde suggested that borrowing costs could come down in the summer rather than in spring, while several other ECB officials have also expressed concerns about wage inflation. Let’s see if the ECB will provide any further hints at this meeting.

US GDP and PCE inflation

Thursday and Friday, January 25/26

Gold, being a dollar-based asset, is likely to be more affected by upcoming US data than anything else. Recent robust reports on CPI, jobs, and retail sales have boosted the dollar, putting pressure on gold prices. If GDP data shows continued strength in the US economy, expectations for an imminent interest rate reduction will be pushed back further. Gold enthusiasts will be on the lookout for weaknesses in US data, including Thursday's GDP report and the Core PCE data the next day.
 

Gold technical analysis

Source: TradingView.com

When examining the gold chart, it’s evident that XAUUSD finds itself at a crossroads, and its short-term direction will become clearer with either a breakthrough above the short-term bearish trendline around the $2040 mark (indicating a bullish trend) or a decisive drop below the crucial horizontal support at approximately $2000 (suggesting a bearish move).

Despite its recent struggles, the overall trend remains bullish when you overlook the recent price movements. Since hitting a low of $1810 in October, gold has established several higher lows and a couple of higher highs, including a fresh record high in December. The metal surpassed its 200-day moving average in mid-October and has maintained its position above it.

A successful breach of the short-term bearish trendline could trigger fresh technical buying, with a target set above the $2040-$2045 range. The recent high at around $2062 becomes a key objective for bullish trades. A potential move beyond this level may lead to a rally toward the next resistance zone between $2075 and $2080. Beyond that, there are no significant reference points until the peak in December at $2146.

On the downside, a clean break of support around $2000 might lead to a drop back to the 200-day MA at $1964. If the price falls below the 200-day MA, the next potential support zone lies between $1930 and $1950, where the 61.8% Fibonacci retracement aligns with prior support and resistance levels, making it a crucial area for the bulls to defend.

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