Editor’s Note
This article discusses a recent dip in gold prices amid thin trading volumes, driven by market holidays and profit-taking. The analysis highlights the reversal of Friday’s gains and the current bearish sentiment influencing the precious metals market.
Gold prices saw a dip on Monday due to light trading volumes, as both the US and China markets were closed for public holidays, alongside some profit-taking following the previous session’s 2.5% rally.
The price of gold is drawing new sellers at the start of the week, erasing some of the significant gains—over $150—made on Friday from levels below $4,900.
Bearish momentum remained in both gold and silver markets as investors assess the ever-changing narrative in the precious metals complex.
Experts believe if gold prices fall below the 100-period simple moving average, the momentum would favour bearish traders.
At the time of writing, the COMEX gold contract was at $5,008.86 per ounce, down 0.7%, while silver was 2.6% lower at $75.948 an ounce.
Markets in both the US and China are currently closed, observing holidays: Presidents’ Day in the US and the Lunar New Year in China.
Gold is facing slight downward pressure due to a modest rise in the dollar and a generally positive risk appetite in the market.
However, underlying geopolitical risks could provide a counterbalance. Specifically, the impending second round of US-Iran nuclear talks this week is a key factor.
The US has escalated its stance by sending a second aircraft carrier to the region, signaling preparedness for a prolonged military operation if the talks fail.
In response, Iran’s Revolutionary Guards have issued a warning, threatening retaliation against any US military base should their territory be attacked.
Meanwhile, any meaningful USD appreciation still seems elusive amid dovish Federal Reserve (Fed) expectations, which tends to benefit the non-yielding yellow metal.
Following last Wednesday’s strong US Nonfarm Payrolls (NFP) report, softer US consumer inflation data released on Friday has increased market expectations for the US central bank to cut borrowing costs in June.
The headline US Consumer Price Index (CPI) increased by 0.2% last month, while the core measure rose by 0.3%.
These figures support the case for further policy easing by the Federal Reserve (Fed), which could help limit the potential decline in the gold price.
Austan Goolsbee, President of the Federal Reserve Bank of Chicago, indicated on Friday that a reduction in interest rates is possible, though he pointed out that inflation in the services sector remains elevated.
While the market widely expects the central bank to keep interest rates steady at the upcoming meeting on March 18, LSEG data showed that participants are still factoring in 75 basis points of rate cuts this year, with the first cut projected for July.
The primary focus will be on the Federal Open Market Committee meeting minutes scheduled to be released on Wednesday, as investors seek further clarity regarding the Fed’s future rate-cut strategy.
Additionally, traders will look to the global flash PMIs on Friday for actionable opportunities later in the week.
The bearish outlook for gold is reinforced by its failure to sustain or build upon Friday’s rally past the 100-period Simple Moving Average (SMA), according to FXStreet’s Menghani.
The commodity is currently trading below this declining SMA, which acts as a resistance near $5,028.40, effectively limiting upward moves and maintaining an intraday negative bias.
Further supporting the downward momentum, the Moving Average Convergence Divergence (MACD) has crossed below its signal line and moved into negative territory, indicated by a growing negative histogram.
A recovery attempt would gain traction only if the MACD line crosses back above its signal line and the RSI reclaims 50, as that combination would ease downside pressure and allow a corrective bounce to unfold.