Gold price has been rallying on the back of a declining US dollar. Concerns over the health of the US economy is at the core of the metal’s price movements. Besides, the February Fed meeting will be a key catalyst for the commodity.
What’s driving the gold market?
The US dollar’s downtrend has been one of the key bullish drivers of gold price in recent sessions. As is the case with other dollar-priced assets, a weaker greenback makes it less expensive for gold buyers holding other currencies. As at the time of writing, the dollar index was $101.66. Since September 2022 when it hit a 20-year high, the index has dropped by over 10%.
Notably, the health of the US economy is at the core of the US dollar/ gold price dynamics. The recently released CPI figures indicated that US consumer prices rose at a slower pace in December; further signalling that inflation has peaked. Subsequently, investors are optimistic that the Fed will ease on its aggressive monetary policy. The created environment has been boosting gold price while weighing on the US dollar.
At the same time, the US manufacturing PMI signalled contraction of manufacturing activity for the fifth consecutive month. The US GDP and PCE price index slated for Thursday and Friday respectively will avail further cues on the health of the nation’s economy.
Gold price forecast
In the past two sessions, gold price has been in the green as the bulls remain in control. However, it has yet again lacked enough momentum to hit the key target at 1,950. Indeed, this level has remained evasive since mid April 2022.
While the precious metal remains on the uptrend that has been in place for over two months now, it appears to have slowed on its rallying over the past two weeks. As at the time of writing, it was up by 0.22% at 1,941.17.
As I have indicated in recent articles, I remain bullish on gold price while acknowledging that it may ease on its rally before surging even further. Indeed, the psychologically crucial level of 2,000 is just a few sessions, weeks, or months away.
For as long as the precious metal remains above the support zone of 1,877.42, which is along the 25-day EMA, the bulls will be in control of the market. However, a hawkish Fed may curb its gains at 1,985.67.
In the short term, 1,950 is a resistance level worth watching. On the flip side, a rebound in the US dollar and Treasury yields may yield a pullback to 1,915 or lower to 1,900.
