Gold investors should expect further selling pressure, as the market has overly anticipated rate expectations. Although a rate cut would lead to a rise in gold prices, potential easing in March may be premature. The gold market did not assess the potential shift in monetary policy very well.
Gold rose amid geopolitical tensions, supporting demand for safe-haven assets. Additionally, expectations of interest rate cuts fueled this rise. Although it is clear that the Federal Reserve's next move will be a rate cut, it will not materialize immediately.
Furthermore, the dynamics of gold prices will primarily be influenced by the U.S. labor market conditions in the near term. A rising unemployment rate may prompt the Federal Reserve to align with market expectations.
According to the CME FedWatch Tool, there is a probability of over 60% for a rate hike in March, followed by a planned reduction in May.
Nevertheless, if the Federal Reserve or the European Central Bank does cut rates in the first half of the new year and this reduction is premature, prices will have to decline. In this scenario, gold will strengthen around $2,100 per troy ounce only in the second half of 2024 when the Federal Reserve begins to consistently lower interest rates.
It is also worth noting that since investors profit from sharp speculative price increases, the critical level to watch is $2,000 per ounce.
Despite fundamental indicators favoring bulls, technical indicators on daily charts appear bearish. Due to geopolitical tensions and key U.S. economic data, including the NFP report this week, the volatility of the precious metal may be heightened. Prices could hover around $2,000 per ounce.
However, while there may be a temporary weakening in the gold market in the near term, there is significant potential for the precious metal in 2024. The optimistic outlook stems from inflation reduction trends, which will lead to Fed rate cuts.
The missing link in the gold market remains Western investment demand. According to the World Gold Council, despite gold prices reaching new record highs, investments in gold-backed exchange-traded products remain weak.
