Market update: gold prices inch back from Fed-inspired battering, hold above $2000

Gold prices have managed some modest gains on Tuesday, after a punishing few sessions, courtesy of the United States’ labor market and the Federal Reserve.

Last week’s news of astonishing job creation has seen interest-rate-cut bets taken off for March, although a May move remains very much in play. This will hugely benefit the dollar.

The prospect of US borrowing costs remaining higher for longer has taken a clear, obvious toll on gold - in a double whammy for the metal. It suffers once by virtue of being non-yielding; and then again thanks to the fact that so many gold products are priced in US dollars, so more expensive for everyone trying to pay for them with other currencies.

It’s notable, however, that gold has suffered rather less from last week’s play than some other assets (such as sterling). The current broad market scene still offers perceived haven assets like the precious metal plenty of support. After all investors are fretting the prospect of a tougher battle against inflation and a broad spectrum of geopolitical risk from Gaza, the Red Sea, Ukraine, the South China Sea and so on. China’s economic underperformance is also simmering away.

Given all of that, it’s perhaps not too surprising that prices have remained above the important $2000/ounce level, even as the dollar’s strength has brought that level rather closer to the market.We’re heading into a rather quieter period of scheduled economic data, which will leave gold prices in thrall to general market risk appetite and, in all likelihood, whatever coming individual Fed speakers have for the market.

Gold prices technical analysis

Prices are once again testing the bottom of their wide, dominant uptrend channel from mid-November, an extension of the gains made since early October’s lows.

The tell-tale higher highs and higher lows of a ‘pennant’ formation are also visible on the daily chart. As a continuation pattern this ought perhaps to indicate that prices will begin to rise again once it plays out, as they did before, but there’s obviously no guarantee they will.

For now, the uptrend channel offers support at $2030.25 level, with 17 January’s intraday low of 1972.88 lying in wait should that give way. A conclusive break of the uptrend, however, might mean a deeper retracement. Near-term resistance is at 2 February’s top of $2056.96 ahead of trendline resistance at $2063.84.

IG’s own sentiment data on gold is mixed, but, with 64% of traders coming to the metal from the bullish side, enough to suggest that the market is looking for modest gains at current levels.

Gold price daily chart

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