On December 19th, the price of gold experienced a notable rebound, climbing back to around $2,620. This recovery comes after a significant drop earlier in the day, when the prices plummeted to the lowest levels seen in a monthThe Federal Reserve's hints at potentially slowing down interest rate hikes next year had initially pushed gold's prices down sharply, even dropping below the crucial support level of $2,600.
As of the latest updates, spot gold saw an increase of approximately 1.3%, recovering to nearly $2,620, following a day that saw prices hit a low of $2,583 since November 18. Market analysts have been keenly observing this fluctuation, recognizing it as pivotal in the assessment of gold's price trajectory.
According to insights from ForexLive, the market reaction follows the Federal Reserve's decisions, which were largely anticipated by traders
Their decision has been interpreted as more hawkish than expected, leading to initial fears that the Fed may take a firmer stance than previously thoughtSuch critical announcements often bring about considerable algorithm-driven volatility, which can result in extreme price movements that do not always reflect underlying fundamentalsIn light of this, traders and investors are emphasizing the significance of the forthcoming economic data that could vastly influence gold prices.
The next key focus for market participants will undoubtedly be the upcoming data releases, particularly regarding the Consumer Price Index (CPI) for JanuaryShould this data show any signs of weakness, it could prompt a more dovish market reactionThe implication would be a potential decline in real yields, thereby heightening gold's appeal as an asset class.
During a highly scrutinized Federal Reserve meeting on Wednesday, the central bank announced a 25-basis-point reduction in interest rates, aligning with market expectations
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However, the accompanying statements suggested that any rate hikes between now and the end of 2025 could be substantially curbed, triggering a swift chain reaction across financial marketsIn this environment, the dollar saw a rise in value, and bond yields surged, while contrarily, gold prices experienced a sharp drop exceeding 2%. This translated to a decrease of around $60 in a single trading day, equating to roughly a 2.3% loss.
Fed Chairman Jerome Powell further elucidated that any decline in borrowing costs would hinge upon tangible progress in combating persistent high inflation ratesThis commentary leaves markets with the uncertainty of how policymaking will continue to evolve.
Kelvin Wong, a senior market analyst at OANDA Asia Pacific, highlighted a significant point, noting that the Fed has relayed a commitment to make data-driven decisions
He warned that if inflation remains unbridled, there exists a considerable risk of the Fed taking a decidedly non-dovish stance next year.
Currently, market expectations are revolving around the notion that the Federal Reserve will likely maintain the current interest rates in their January meeting.
Ajay Kedia, director of Kedia Commodities, remarked that typically, rising interest rates bolster gold prices; however, the recent uptick in gold prices can principally be attributed to short-term corrective moves following earlier declines.
Traders are now eagerly anticipating the forthcoming GDP data, initial jobless claims, as well as the core PCE data, which is the Federal Reserve's preferred inflation metric scheduled for release on Friday.
Wong advised that if the personal consumption expenditure data aligns with market expectations, there shouldn't be any surprises
However, if the figures exhibit growth to 3% or higher, it could put pressure on gold pricesHe also noted that short-term speculators are actively seeking opportunities to buy on dips, indicating a market bullish sentiment still lingering in the background.
The technical outlook for gold is currently a topic of considerable discussion among analysts.
On the daily chart, the aftermath of the FOMC decision reveals that gold had initially breached the vital $2,600 support level before managing to recover some lossesBuyers may be gearing up to enter the market at these levels, setting their sights on a resistance target of $2,721, while sellers could be looking for another chance to breach the $2,600 support, aiming to amplify their bearish bets until the next major trend line around $2,400.
Looking at the four-hour chart, gold continues trading within the range set between the $2,600 support and the $2,721 resistance, with $2,660 acting as the midpoint level