Interest in the precious metal (gold) dissipated during the first week of December as traders attempt to assess the impact of an intricate mix of economic and political factors.
The definitive win of Trump at the presidential elections, the pending economic reforms of the US under his command, geopolitical turmoil across numerous regions of the globe, are some, but not all, of the prime factors that are bound to affect the safe haven assets’ price in the immediate future.
Hence, in this report we will particularly focus on Trump’s presidency aims and how they can impact the precious metal’s (gold) price, assess its future outlook and conclude with a technical analysis.
Trump policy uncertainty
The landslide victory of Donald Trump at the 2024 presidential election and the exit of Democrats from the White House, injected a wave of ambiguity and uncertainty into the mix, complicating analysts’ calculations, blurring the horizon.
Trump’s jester-like aura, bundled with his unpredictability, nudged forecasters to scramble back to their drawing boards, to chart the path of the United States future, under his command.
Opinions and forecasts from analysts vary substantially, some worry that the world is in for a bumpy, volatile ride, whereas others speculate that, under his second reign, things will run much more smoothly, since there exists already, friction, with the administrative matters of the nation.
Hawkish stance on tariffs risks inflation uprise, problem for Fed plans
Earlier last week, markets scrambled to price in the impact of promised tariffs from the 47th President of the US, who seeks establish his top-dog status and exert his dominance on the international stage, as soon as he officially steps in office in January.
Trump vowed to impose an additional 10% tariff on all imported goods arriving from China alongside a 25% tariff hike for imports from its neighbors, Canada and Mexico and this stance fueled concerns over escalating global trade tensions.
Furthermore, a few days later he issued another stark warning against BRICS nations, an alliance that China is a founding member of. In essence, Trump threatened that his administration is considering imposing 100% tariff on the alliance’s members, if they chose to pursue the creation of a digital currency that seeks to counter the USD dominancy and dilute its reliance from the global international community.
Economists branded the president’s statements as being clearly economic, but hinted that they also possess another dimension, a political undertone per se, as justifications given for this stance, revolved around his campaign promises to squash illegal immigration and choke the flow of drugs and narcotics through the boarders.
Tariff talks have been, for the time being, encapsulated merely in FX moves, since such fiscal measures usually lead to an appreciation of the domestic currency, the greenback in this case, and do on the contrary exert pressure on foreign currencies, as nations have to now adjust, and balance their trade and budgets accordingly, to counteract the effects.
At the end of day however, tariffs (should they be imposed) are inflationary by nature, giving rise to worries for a possible interruption of the Fed’s policy plans in the immediate future, which could give rise to volatility and erratic trading moves in gold’s price.
Hence, as we are traversing through the early stages of the Federal Reserve’s policy loosening phase, the central bank’s economists and quants are expected to scramble back to the drawing board and do their best to accurately predict the trajectory of price pressures, in order to provide Fed officials with critical data to make better policy decisions in the future.
Money markets at the same time, also rushed to account for the forecasted impact of such policies and how they can distort the central bank’s policy intentions in the future, which could give rise to divergent views between them and the Fed and amplify further volatility.
Currently, money market participants assign a 72% probability in the scenario that the central bank will go for a 25bps rate cut at its December meeting and drag down the federal funds rate to the 4.25-4.5% region at the end of the year 2024.
Onwards, traders foresee another 25bps cut in March after a brief pause in January, and an additional 25bps cut in the September meeting, leaving a cumulative total of rate reductions of 50bps in 2025, with a terminal rate of 3.75-4% at the end of 2025.
Gold Technical Analysis
XAUUSD H4 Chart
- Support: 2605 (S1), 2560 (S2), 2500 (S3)
- Resistance: 2650 (R1), 2740 (R2), 2790 (R3)
Looking at XAUUSD (Gold) Daily Chart we observe the precious entering a consolidation phase since due to lack of volatility and interest, since the 26th of November and trade bounded between $2605 (S1) and $2675 (R1) levels.
We hold a sideways outlook bias for the commodity given the lack of momentum and lack of resolve from both the bulls and the bears to take over the initiative.
Supporting our case, is RSI indicator which registers a value of 49, highlighting the current indecision phase of the bulls and bears, but also the ADX indicator, which has plummeted in recent weeks and now registers a value of around 15, signalling deceleration of momentum.
Furthermore, +DI and -DI values are currently intermingling and head on to break below the 20 threshold, confirming the lack of interest.
Lastly, the merging of the price action around the 12EMA and the 26EMA periods, is another clear sign of temporary consolidation.
We do however stand ready to alter our assessment from sideways to bullish, should the price action make headway above the ascending trendline, which has been interrupted earlier in November and interpret the formation of a the current new higher low, as a brief pause, in long term upwards trajectory of the commodity (gold).
It would require however, a great deal of buying interest to create, volatile enough, trading conditions and fast price action, for the next leg up, if any.
Should, the bulls take the helm and start piling in long orders and at the same time the bears stand pat, we may see the precious breaking past the $2675 (R1) resistance barrier and head for the $2740 (R2) area.
Should on the other hand, the bears find enough resolve and pile in short positions, we may see the break of commodity below the immediate $2605 (S1) support level, and head for the $2560 (S2) support base.
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