Gold Prices Faces Headwinds as Hawkish Fed and Geopolitical Risks Offset Safe-Haven Appeal

gold prices

February 5, 2023

New Delhi, India

In a recent turn of events, the gold market is experiencing a downturn, reaching a one-week low at around $2,025. The decline is attributed to a combination of factors, including the Federal Reserve’s (Fed) hawkish stance, the performance of the US dollar, and ongoing geopolitical concerns.

Fed’s Impact on Gold Price:

Investor sentiment took a hit after the release of a robust US jobs report, prompting a reassessment of expectations regarding the Fed’s monetary policy. The unexpectedly strong job numbers, with 353,000 new jobs added in January, have led to a reduction in the probability of a rate cut in March to just 15%, down from over 65% last month. This shift has driven up US Treasury bond yields, negatively impacting gold, a non-yielding asset.

US Dollar’s Role:

While the US dollar saw an intraday uptick, it faced resistance at the 100-day Simple Moving Average (SMA). This resistance could offer some support to gold prices, as a strong dollar often acts as a deterrent for gold investors. The delicate balance between the dollar’s strength and weakness will play a crucial role in determining the future trajectory of gold.

Geopolitical Risks and China’s Economic Woes:

Despite the pressure from the Fed and the US dollar, gold finds support from escalating geopolitical tensions, particularly in the Middle East. Additionally, concerns about China’s economic slowdown contribute to the safe-haven appeal of gold. China’s services sector, while still in expansion, grew less than anticipated, adding to worries about a global economic slowdown.

Also Read: Commodity News

Technical Analysis: Potential Support and Resistance Levels:

From a technical standpoint, gold is vulnerable to testing support levels around $2,010-2,009, with further downside potential to the $2,000 psychological mark. However, a breakthrough of resistance levels, particularly beyond $2,042, could pave the way for a positive momentum towards $2,078-2,079, with $2,100 as a key psychological and resistance level.

Looking Ahead: Short-Term Opportunities and Considerations:

Traders are closely monitoring upcoming events, including the release of the US ISM Services PMI and speeches by influential FOMC members for short-term opportunities. The global landscape, including geopolitical developments and economic data, will continue to influence gold prices in the near term.

In conclusion, the gold market remains at a crossroads, influenced by the Fed’s monetary policy, the US dollar’s dynamics, and ongoing geopolitical uncertainties. Traders are advised to stay vigilant, considering technical levels and global events, as they navigate the complex landscape of the gold market.

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