Gold prices recently corrected after retracing from a three-week high of $2,721. Such a turn of events was because of the broader market dynamics-the shifting investor sentiment and changing geopolitical conditions. The drivers that explain the fluctuation in the market besides what could further be ahead are explained below.
Key Takeaways
Gold retreated from the three-week peak of $2,721 as geopolitical tensions relaxed.
Pivotal support levels are now $2,650 and $2,630, while resistance levels are $2,700 and $2,721.
The Federal Reserve policy and U.S. Treasury yields remain the most powerful drivers of the gold price. For the moment.
One longer-term influence points to potential risk of new upside momentum.
Key Drivers for Gold Price Correction
Recent changes in the world markets have prompted this correction. The decline in geopolitical tensions, with reports suggesting progress toward a ceasefire between Israel and Hezbollah, saw reduced attractions to gold as a safe-haven asset. Besides, the nomination of Scott Bessent as the US Treasury Secretary brought a sense of stability, further shifting flows away from gold.
On the monetary front, Federal Reserve policy still provides heavy influence on gold prices. While much more aggressive rate cuts had been priced in at the outset, recent commentary from policymakers has been considerably more measured. This has now priced in only a 25-basis-point rate cut for December. Gold is generally considered to thrive in low-rate environments; this recently cautious view has dampened the enthusiasm for gold.
Technical Analysis: Critical Levels to Watch
In this respect, Gold's correction has brought into light some critical technical levels. The precious metal briefly found support around the $2,660-$2,658 area, which has coincided with the 100-period SMA on the 4-hr time frame. A breach below this level is likely to expose further downside toward the $2,630 level - 50% Fibonacci retracement, and possibly as low as $2,610 - 61.8% retracement.
On the upside, resistance is at $2,677, further capped by additional levels at $2,700 and recent peak at $2,721. Any sustainable move above these would confirm the renewed bull momentum and probably set a re-test of the all-time high at $2,790.
Market Sentiment and Broader Trends
The correction of the gold market underlines this effect due to global sentiment. Stronger US economic data, including Composite PMI reaching 55.3, drives risk-on sentiment and diverts money from gold into equities. Meanwhile, the sell-off in US Treasury bond yields below 4.35% has encouraged some profit-taking activity in the US Dollar, which partly cushions the fall in gold prices.
While this may be the fact, the underlying long-term fundamentals for gold remain supportive. The unwind of shorts has created a technical floor, signaling that downside risk is limited. With major economic reports in store, which also include the minutes of the FOMC and the PCE inflation data, gold prices are likely to continue their action in short-term volatility.
Conclusion
Gold had corrected from the $2,721 mark to reflect better investor confidence and more measured expectations of interest rate cuts by the Fed. The immediate outlook for the short term is one where the price of gold could further consolidate. But the longer-term case for gold as a hedge for both inflation and economic uncertainty is sound.
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