Last week, gold prices achieved a significant milestone, reaching record highs near the $2,100 mark. This surge was, however, followed by a retraction, with prices pulling back as traders engaged in profit-taking. Despite this pullback, gold concluded the week on a positive note, showing a net gain, bolstered by the Federal Reserve’s expectations of three rate cuts by 2024.
Last week, XAU/USD settled at $2165.31, up $9.30 or +0.43%. This is down from a record high of $2222.915.
A notable difference was observed between the physical gold market and the futures market. While the futures market exhibited a bullish sentiment, the physical market presented a more tempered response. This divergence indicates a broader spectrum of factors influencing different segments of the gold market.
Post the record highs, the gold market has shown signs of short-term weakness, attributed to an oversold condition and profit-taking. Bullish traders are reassessing the market’s value in light of the Federal Reserve’s neutral stance. This recalibration suggests that the initial strong reaction to the Fed’s statements could have been an overextension, considering that bullish news might have been already factored in by the market.
Despite these short-term fluctuations, the long-term outlook for gold remains bullish. However, a phase of consolidation or stabilization is likely as the market adapts to recent highs and investor expectations adjust. Gold’s key technical support level around $2,103 will be critical in this phase. Investors and traders are expected to shift their focus from buying on strength to seeking value-oriented opportunities, particularly at current price levels.
Investment in gold witnessed a significant uptick, reaching nearly a year’s high, with a notable $1.1 billion inflow into gold funds, the highest since May 2023. The central bank’s influence, particularly the Federal Reserve’s indication of a 71% chance of a June rate cut as per the CME FedWatch Tool, continues to play a crucial role in gold’s valuation.
In the upcoming week, the gold market is expected to experience a more cautious approach, balancing the long-term bullish sentiment with short-term market conditions. The focus will likely be on finding value rather than pursuing momentum, a strategy that aligns with the current market recalibration. As investors and traders navigate these market conditions, a more sustainable and stable rise in gold prices is anticipated, establishing a robust foundation for future growth.
James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.