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Gold Pulls Back from All-Time Highs, But What is the Longer Term Outlook?

72

European PMI data for Services and Manufacturing sectors again fall and indicate further pressure within the European markets.
The Pound declines as dovish members of the Monetary Policy Committee outnumber the hawks. The Pound is seeing the strongest decline against the Australian Dollar.
Gold rises to a new all-time high after moving within a descending triangle for 9 days.

GBPAUD

The Pound has been declining against the Australian Dollar for a second day and mainly for two reasons. First the UK saw a significant decline in inflation. UK inflation fell from 4.00% to 3.4%, which is more than previous expectations and more than the US. The second is the Bank of England MPC votes. The Monetary Policy Committee saw no members vote for a rate increase for the first time since September 2021.

The Australian Dollar on the other hand has performed considerably well this week and has even risen to an all time high against some currencies. The hawkishness of the RBA and the latest employment data supports the Australian Dollar. Australia’s Employment Change saw 116,500 more employed individuals within the economy in the latest month. This is higher than analysts’ expectations and the highest rise since December 2021. Simultaneously the Unemployment rate fell from 4.00% to 3.7% meaning Australia now has a lower unemployment rate than the UK.

For this reason, fundamental analysis slightly supports a strengthening AUD. Correlations with Gold also support the Australian Dollar and the AUDUSD. A higher Gold price is believed to support the AUD to a certain degree. Technical analysis and indicators are so far indicating a decline in the exchange rate. Oscillators are yet to indicate an oversold price; however, investors should remain cautious of volatility.

 XAUUSD

The price of Gold again saw significant gains continuing the bullish trend markets have been witnessing since October 2023. The price driver was the “dovishness” of the Federal Reserve which was unexpected considering the higher inflation data over the past 3 months.

The main takeaway from the Federal Reserve’s statement and press conference was the Chairman’s comments on inflation. Mr Jerome Powell advised the regulator is still expected to cut interest rates regardless of monthly PPI and CPI data.  Powell also told journalists there are “signs” inflation is falling, but remains too “high”. According to economists, the Fed will cut on 3 occasions in 2024.

Following the release of the minutes, expectations are for a possible policy adjustment, with markets now forecasting a “dovish” scenario with a probability of 53%, while previously, according to the CME Group FedWatch Tool, it was just over 60%. However, stronger data from the US PMI puts pressure on Gold quotes in the short term. US Manufacturing rose from 52.5 and was higher than expected.

According to Fibonacci levels, buyers may still control the market even if the price declines to $2,178 in the short term. If the price loses momentum quickly and the price rises above $2,211.22, buy signals are again likely to materialize.

Michalis Efthymiou

Market Analyst

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

 

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