Gold faces volatility amidst Fed’s cautious stance on rate cuts and upcoming job data; Geopolitical factors to play key role

Gold faces volatility amidst Fed’s cautious stance on rate cuts and upcoming job data; Geopolitical factors to play key roleBy Bhavik Patel

Gold saw modest gain this week with plenty of selling pressure emerging after US meeting minutes were published. The minutes noted that while rates will be coming down, the Federal Reserve is still in no hurry to ease monetary policy anytime soon. Several members observed that circumstances might warrant keeping the target range at its current value for longer than they currently anticipated.

Currently, the central bank has signaled three potential rate cuts this year, while the CME FedWatch Tool shows markets see the Fed Funds rate falling below 4.00% by the end of the year. The market meanwhile was over-optimist about a rate cut in March and that is why we saw selling pressure in both gold and silver on Wednesday. It was the largest decline in three weeks. 

On Thursday, gold and silver both are trading steady although we have not seen any rally despite the Dollar index weakening. It might be because the market is waiting for Non-Farm payroll data on Friday.

The key non-farm jobs number in the report is expected to come in at 170,000 and compares to a rise of 199,000 seen in the November report. Yesterday U.S. ADP jobs report for December showed a larger-than-expected rise of 164,000, versus expectations for a gain of 130,000. Markets showed little reaction to the news.

The stronger-than-expected jobs data on Thursday means the Fed will not be in any hurry to cut rates which is why we have seen negative reactions in gold and silver. In MCX, gold is looking vulnerable after a recent peak of 63821. 

The strong bearish candle of 3rd Jan shows long unwinding but gold bulls also have edge as the low of that day i.e. 62418 has not been breached. The next day we saw price action inside the big red candle on 3rd Jan indicating price consolidating.

Any further bearish trend is expected below the low of 62418. We recommend taking a short position below that level for an expected downside target of 61900 and stoploss of 62700.

(Bhavik Patel is a commodity and currency analyst at Tradebull Securities. Views expressed are the author’s own. Please consult your financial advisor before investing.)