Technical Analysis
Bullish Continuation
Demand Levels: 2008.33 – 2014.41
The prediction for gold today tends to see a slight decrease, despite being generally on an upward trend. However, it appears there might be a temporary decline before a subsequent rise. This upward trend in gold occurs as the market enters the closing weeks of 2023, following Federal Reserve Chair Jerome Powell's statement indicating that the historic tightening of monetary policy is likely to conclude, and discussions about interest rate cuts will 'begin to emerge.' Investors will receive the latest information regarding US inflation for this year, while the Bank of Japan might move towards long-awaited policy changes. These are the key points to kickstart your week.
This in turn prompted a rush to conventional safe havens. Fears of an escalation of the Israel-Hamas war have been the main driver of gold's gains this month, putting the precious metal at a more than five-month high in early October. While the central bank is widely expected to hold interest rates steady, it is also expected to reiterate its plans to keep rates higher for a longer period. In the trend for the current situation will continue to decline first, then in the future it will tend to rise in the long term and support from candlesticks as well. The prediction of this analysis is supported by candlestick analysis and trendline analysis.
Fundamental Analysis
Gold prices remained stable in Asian trading on Monday (18/12), holding above key levels after dovish signals from the Federal Reserve triggered a sharp decline in the dollar and Treasury yields, despite a rebound on Friday due to favorable manufacturing and service PMI data.
Precious metals bounced back from recent weakness last week after the Fed signaled the end of rate hikes and hinted at considering deeper rate cuts in 2024. The Fed's comments led the market to anticipate at least three rate cuts by the central bank, with the first cut potentially happening as early as March 2024.
Additionally, as reported by Reuters on Friday (15/12), U.S. factory production rose in November released last Friday, aided by a rebound in motor vehicle production after the end of strikes, but activity weakened elsewhere as manufacturing grappled with higher borrowing costs and weakening demand.
Despite various challenges in the manufacturing sector, the economy continued to expand at year-end. A survey on Friday indicated an increase in business activity in December amid rising orders and demand for workers in the service industry.
Manufacturing output rose by 0.3% in November, as reported by the Federal Reserve. Data for October was revised lower, showing factory production declined by 0.8%, not 0.7% as previously reported. Economists surveyed in the report had estimated a 0.4% increase in factory production.
The third report, from S&P Global, showed the flash manufacturing PMI dropping to 48.2 in December amid shrinking orders from 49.4 in November. However, the PMI for the services sector in this survey rose to 51.3 from 50.8, with sub-components of new orders, employment, and input prices all rising.
The dollar plummeted to a four-month low after the Fed, while Treasury yields fell overall, with the 10-year yield dropping below 4%.
Gold benefited from this trading, as the prospect of lower interest rates increased the appeal of the precious metal. Lower interest rates also reduce the opportunity cost of investing in gold, which does not yield interest and is mostly driven by sentiment and safe-haven demand.
Spot gold steadied at $2,019.68/oz, while futures gold slightly dropped by 0.1% to $2,033.60/oz at 07:37 WIB on Monday (18/12) morning.
However, gold prices are still trading well below the record high above $2,100 reached earlier this month.
The Fed is expected to cut rates in early 2024.
The market is currently speculating on when the central bank will start cutting interest rates. Fed Fund futures point to more than a 70% likelihood that the central bank will cut rates by 25 basis points in March 2024.
Goldman Sachs predicts the bank will cut rates by 25 basis points three times, in three consecutive meetings starting in March 2024.
Rate cuts also come amid growing optimism for a soft landing for the U.S. economy, although signs of economic resilience - particularly in inflation and the labor market - could delay the Fed's rate cuts.
While gold benefits from lower interest rates, increased risk appetite also has the potential to attract capital away from precious metals and toward higher-yielding, riskier assets.
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