The Federal Reserve delivered a 25 basis point rate cut as expected but signalled a more cautious approach to further reductions. Despite the rate cut, Fed Chair Jerome Powell adopted a dovish tone, downplaying inflation risks and highlighting ongoing labour market weakness. This combination has important implications for forex traders and the precious metals market.
Gold broke out of a two-week consolidation phase below the 4245 level yesterday and extended gains above 4300 this morning. The move was primarily driven by technical factors rather than fundamental news. US initial jobless claims were in line with recent releases, and although continuing claims beat expectations significantly, the market largely dismissed this due to holiday distortions. The breakout triggered stop-loss orders and attracted more buyers aiming for new highs. Powell’s dovish comments also provided added support for gold.
Looking ahead, the key risk events for gold will be the US Non-Farm Payrolls (NFP) report on Tuesday and the Consumer Price Index (CPI) on Thursday. Strong employment and inflation data could weigh on gold, triggering a correction, while weaker figures may further boost the precious metal.
In the broader context, gold is expected to remain in an uptrend since real yields are likely to stay low under the Fed’s dovish stance. However, any short-term hawkish repricing of interest rate expectations could temporarily pressure gold prices.
Technical Analysis of Gold
Daily timeframe
After breaking above the 4245 resistance, gold buyers pushed prices higher to around 4280. The next natural target is the all-time high near 4381. At this level, sellers may emerge, with defined risk above it to position for a potential pullback to the 3887 area. Conversely, bulls will seek a break above the all-time high to open the path for further gains.
4-hour timeframe
Yesterday’s breakout is more evident here. A pullback to the 4245 level — now support — would likely attract buyers placing stops below this area to continue the rally towards the all-time high. If sellers gain control, a break below 4245 could extend the pullback to the 4150 support level.
1-hour timeframe
A minor upward trendline supports the bullish momentum on this timeframe. Buyers are expected to rely on this trendline with stops placed below it to maintain upward pressure toward new highs. Sellers will watch for a break below the trendline to increase selling pressure and target a drop to 4245, aiming for a break below this support. Red lines on the chart indicate today’s average daily range.
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Forex traders should monitor Tuesday’s US Non-Farm Payrolls report and Thursday’s CPI release closely, as these events are critical for gold and broader market direction next week.
Original Source: Giuseppe Dellamotta of investinglive.com
