Gold traders are easing into the week, taking a cautious approach as they anticipate key economic events that could significantly influence the precious metal’s price.
Despite the dollar index showing strength due to recent data, there’s still optimism among traders that gold prices will continue to climb, especially since it has maintained its position above critical price levels over the past week.
Currently, gold is trading around the 2,500 mark—a level that many consider crucial. This price point holds psychological significance, reflecting the overall strength of the trend. Traders believe that as long as gold stays above this level, the bullish momentum could persist throughout the year.
However, some speculators caution that the optimism surrounding a potential Fed interest rate cut may already be priced in, and once the event occurs, there could be a downturn.
At the time of writing, gold prices have dipped slightly by 0.4%, hovering just below the key 2,500 level at 2,498. This month, the Fed is expected to reverse its rate hike cycle, a move not seen since the COVID-19 pandemic.
With U.S. interest rates at multidecade highs, the dollar index has strengthened considerably, putting downward pressure on gold. Yet, there has been growing anticipation that the Fed will cut rates, with some speculators hoping for a more aggressive approach.
Last month, the Fed Chairman indicated that a change is imminent, signaling a likely rate cut this month. He expressed satisfaction with inflation’s decline from its peak, which has fueled optimism among gold traders.
Additionally, the Fed Chairman’s comments about the U.S. labor market—suggesting that he doesn’t foresee further weakening—have heightened speculation that the Fed might face pressure to take bolder action, despite their past reluctance.
The market is currently expecting a 25-basis-point rate cut from the Fed, but the upcoming U.S. labor market data, particularly the Non-Farm Payrolls (NFP) report due on Friday, could influence the pace of this cut.
This week is crucial for both the U.S. dollar index and gold prices, as other significant data releases, including ADP employment figures, JOLTS data, and the U.S. Services number, are expected to spark further discussion about the potential for a deeper rate cut if the numbers fall short of expectations.
Technically, traders are keeping a close watch on significant price levels and their impact on gold’s price movement.
On the weekly chart, there was little action last week as many traders remained on the sidelines, believing that much of the positive news—including a possible 25-basis-point rate cut—has already been factored into the price.
On a 4-hour chart, gold is forming an ascending triangle pattern, suggesting a potential breakout to the upside. However, the bulls are cautious, given that the price is currently below the 100-day SMA on the 4-hour time frame. Monitoring resistance levels closely will be crucial for traders moving forward.
