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Gold Rally May Take a Pause

ByEkaterina Seredinskaya
Published 04/01/2019, 07:41
Updated 09/07/2023, 11:32
XAU/USD
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GC
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Gold prices extended their bullish breakout on Thursday, with the bullion rallied to fresh mid-2018 highs marginally below the $1.295 figure. The yellow metal has been on the rise for a third week in a row and looks set to regain its appeal further in the longer run. However, the short-term picture suggests that the prices could see a pullback before another bull run towards the $1.300 handle takes place. Friday morning, the bullion jumped to $1.298 but failed to sustain momentum and pulled back slightly.

The current strength in the precious metal is mainly due to a combination of weaker dollar and the risk-off sentiment that prevails in the financial markets due to a number of concerns, from slowing global growth to the political uncertainty in the US.

Another bullish factor for gold that seems to be emerging now is that the market is taking a step back in the Fed rate hike expectations. In particular, the Fed fund futures market is now pricing in a nearly 40% chance of a rate cut by the end of 2019. Should the incoming US economic data further point to slowing growth, the ‘dovish’ outlook will get more entrenched. Such a scenario will play into gold’s hands and could send the metal rally.

In the short term, however, there is a risk of a marginal bearish correction in prices as the bullion has come close to the psychological level of $1.300 which could attract partial profit-taking. Today, Fed’s Powell speaks in Atlanta. Should he refrain from signalling a pause and sound not as ‘dovish’ as investors expect, the greenback could see a local upside correction. In this case, gold may retreat below $1.292, where buyers will reemerge later.

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