Gold Dips Near $2,700 Level

On Friday, January 17, the gold market showcased an impressive performance as prices soared to near a five-week high

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There are rising expectations that the market may witness its third consecutive week of growth, drawing the attention of numerous investors who watch these developments closely.

Recent market activities reveal that U.Seconomic data has significantly impacted the trajectory of gold pricesEarlier this week, new inflation figures emerged like stones thrown into a tranquil lake, reigniting market anticipations of multiple interest rate cuts by the Federal Reserve (Fed) within the yearOn Wednesday, the release of the core inflation data reported below expectations greatly influenced market sentimentTraders started to absorb the prospect of two potential rate cuts this year following the announcement, adversely affecting the dollar index, which is expected to decline by approximately 0.5% this week, halting a streak of six consecutive weeks of gains.

Specifically focusing on gold prices, as of the article's finalization, spot gold experienced slight fluctuations, dipping by 0.1% to around $2,710 per ounce

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However, it had previously recorded gains for three consecutive trading daysOverall, gold showed robust performance this week, surging approximately 1%, reaching a peak of $2,724.61 on Thursday, the highest level since December 12.

Nevertheless, the market remains rife with uncertaintiesThursday's data revealed robust retail sales growth in the U.Sfor December, alongside strong loan activity, indicating persistent consumer demandThis data momentarily dampened market expectations regarding interest rate cuts by the Fed, leading to speculation that the central bank might adopt a more cautious approach this year, particularly as it previously forecasted potential rate hikes in 2025.

Different stakeholders within the market hold varying perspectives and interpretations regarding gold price trends

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Ajay Kedia, director of Kedia Commodities in Mumbai, noted that current gold prices are distinctly supported by a weakening dollar, and the earlier inflation data has bolstered interest rate cut expectationsHe opined, "We see $2,694 as a support level; once we break through $2,720, prices could potentially rally towards $2,770." The inflation figures released on Wednesday did indeed provide strong support for gold prices, and on Thursday, Fed Governor Christopher Waller remarked that if U.Seconomic data continues to deteriorate, there could still be three to four interest rate cuts this yearAccording to LSEG, current market sentiment anticipates a 41 basis point reduction this year, an increase from 37 basis points before Waller’s comments, underscoring heightened expectations for rate cuts.

Analysts at ANZ Bank argue, “Although market expectations for Fed rate cuts remain pivotal, we believe gold will serve its role as a risk diversifier amidst macroeconomic and geopolitical uncertainties

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The sensitivity of gold to its traditional drivers—namely interest rates and the dollar—will likely remain volatile until 2025.” Kieran Williams, Asian foreign exchange head at InTouch Capital Markets, offers a contrasting viewpoint, cautioning against premature dismissal of the dollar's potential to strengthen further due to the enduring robustness of the U.Seconomy, evolving policy expectations, and an upward trend in tariff premiumsMichael Langford, chief investment officer of Scorpion Minerals, pointed out that the uncertainties stemming from the incoming government and its prospective policies are also influencing gold, seen as a trading instrument to manage short-term fluctuations.

From a technical perspective, gold is currently trading around $2,710 and is striving to reclaim its footing above the pivotal $2,723 level

However, a double top formation near $2,723 has established substantial resistance, consequently restricting upward momentum in gold pricingImmediate support is identified at $2,689.72, while deeper support areas lie at $2,655.80. On the upside, resistance levels can be seen at $2,749.20 and $2,771.37.

The trends in other precious metals exhibit a stark divergence, creating markedly contrasting scenariosOn that day, spot silver performed poorly, dropping by 0.7% to $30.55 per ounceNevertheless, it continues to hold potential for a third consecutive week of gains, reflecting its latent upward momentumPalladium also faced declines, decreasing by 0.4% to $935, accumulating an approximate 1% drop for the week thus far, indicating a relatively sluggish market performance