Gold prices swung violently during the Asian trading hours on Friday. This surge was largely driven by short covering and a general flight to quality. As traders positioned themselves heading into the weekend, taking profits or making bets on the coming price action, this caused increased volatility within the precious metal’s value. Gold is now on course for a stellar 8% surge for the week. This increase follows a worsening outlook on US Dollar availability, fueled by souring US-China trade relations and signals of possible US Federal Reserve (Fed) interest rate cuts.
The trading dynamics today indicate that the range has narrowed significantly and that gold is almost continuously trading within a $100 range. It seeks to nail down its ninth-straight weekly advance. The recent spike in volatility has once again revealed the might of gold as a safe-haven asset. Simultaneously, it helps uncover the broader factors that are pushing and pulling bitcoin’s market movement.
Factors Driving Gold’s Price Movements
According to recent statistics released by the World Gold Council, central banks bought a jaw-dropping 1,136 tonnes of gold last year. That’s right, this treasure trove of gold is valued at over $70 billion! This influx is already on track to be the largest annual net purchase of gold since records began. Emerging economies, particularly China, India, and Turkey, have been actively increasing their gold reserves, underscoring the growing importance of gold in diversifying national assets.
The technical outlook for gold is quite solid despite the dynamic price changes of the last two weeks. The sudden jump in prices has prompted speculators to cash out at opportune moments. The 14-day Relative Strength Index (RSI) is indicative of this run and is nearing an extreme overbought level of 87.50. Analysts say this means the current trend is indeed bullish. They caution that risks are moving in the direction of a possible correction.
“Counting on the momentum that helped end terror and war in the Middle East to also help end the war with Russia.” – Volodymyr Zelenskyy
Market Sentiment and Future Predictions
Market sentiment has certainly changed as investors consider the meanings of comments from Minneapolis Fed President Neel Kashkari made late Thursday. He pointed to the danger of more unpleasant surprises on the labor market side than on the inflation up side. This sentence has led to much speculation about the prospect for additional rate cuts from the Fed. Cuts like these would push even more investors to seek gold as a safe haven investment.
As market participants shift their focus to the weekend, many will be adopting profit-taking strategies. End of week flows are especially powerful in swaying near-term price action. Traders will continue to recalibrate as they anticipate how markets will react to the changing economic data and shifting geopolitical landscape.
The first support level to watch for gold is the ascending channel resistance-turned-support, where the 23.6% Fibonacci retracement level is located, around $4,243. If this level does not hold, sellers will have the momentum to drive price down toward the channel support at $4,095. If the daily candlestick manages to settle below this level, then it would confirm a bearish breakdown. Such a scenario might set off a correction that tests the demand zone between $3,950 and $3,900, where important technical indicators such as the 21-day Simple Moving Average (SMA) and previous highs from Oct.
Long-Term Outlook for Gold
And while the door appears to be open for more short-term corrections, analysts continue to express bullish sentiments for gold’s long-term outlooks. The psychological barrier at $4,450 is a major one. If it’s the buyers that take back the market dynamics, expect them to gravitate towards the round number of $4,500 too. On the other hand, if sellers are in control, they can push prices down.
A retest of the all-time highs around $4,379 would be considered a near certainty if the bulls reclaim their momentum. What drives gold prices higher? Profit-taking and renewed demand will be the decisive factors going forward. Only time will tell whether gold’s upward streak can continue its positive trend or if the metal will pull back.