Gold Returns to Winning Ways, But Can it Sustain the Upside?

Summary:
• Gold prices ended the day lower in the last two sessions, but with the US dollar weakening, the upside doesn't seem farfetched.

Gold prices rose in the European trading session on Monday as its safe haven appeal attracted buyers, with the US dollar losing some strength. Spot gold went for $2171 per ounce, and was up by 0.30%, while futures gold traded at $2170 an ounce, after rising by 0.47%. The commodity was rejected at $2222 two sessions ago, but a weaker US dollar and muted market fundamentals could provide another opportunity for an onslaught.

The US economy provided multiple high-impact data that favoured gains by the dollar, to the detriment of gold. This saw the DXY index rise from 102.84 to 104.33 between March 11 and March 25^th. At the same time, yields on medium-term and long-term US bonds rose significantly, reducing gold’s appeal. However, investors still hold a favourable view of gold as a safe haven investment for 2024.

Many central banks are still struggling to strike a balance between inflation and interest rates that can ensure sustainable economic growth. The uncertainty means that more disappointing economic figures are almost certainly in the pipeline. China’s the world’s second-largest economy has shown signs of a revival in recent weeks. Nonetheless, it remains the posterchild for a global economy blowing hot and cold as its property market troubles seem far from over. This will likely keep central banks and retail investors going back to the market.

The US Fed is expected to announce three rate cuts in 2024, and this favours steady gains by gold in the mid-term. However, last week’s decision to keep the current 5.25%-5.50% rate will continue providing support to the dollar.  

Technical analysis

Gold price trades on the edge, and will need to overcome the resistance at 2179 to sustain its upside. A successful breach could build the momentum to go to 2188, and potentially to 2198 on extension. However, the upside narration will be invalid if resistance remains at 2179. Instead, that could build downside momentum to break the support at 2157, beyond which the next support will be at 2150.