Gold prices closed out 2023 above $2063 an ounce, as the Federal Reserve signaled that it would cut interest rates in 2024 to support the economic recovery. Technical analysts say that gold has broken out of a consolidation pattern and could target higher levels in January.
The main catalyst for gold’s rally was the Federal Reserve’s monetary policy statement on December 13, 2023. The Fed kept its benchmark interest rate unchanged at 0.25%, but said that it expects to start reducing its bond purchases in January 2024 and end them by March 2024. The Fed also revised its projections for inflation and growth, acknowledging that inflation has been higher and more persistent than expected.
The Fed’s statement was seen as more dovish than anticipated by the markets, as it indicated that the Fed is not in a hurry to raise interest rates despite the inflationary pressures. The Fed also said that it would tolerate inflation above its 2% target for some time, as it believes that inflation will moderate in the medium term.
The Fed’s dovish stance boosted the appeal of gold as a hedge against inflation and a store of value. Gold also benefited from the weakness in the US dollar, which fell to a three-week low against a basket of major currencies. A weaker dollar makes gold cheaper for holders of other currencies.
Gold breaks out of consolidation
Gold’s price action in 2023 was largely influenced by the Fed’s policy stance and the developments in the Covid-19 pandemic. Gold started the year on a strong note, reaching a record high of $2,089.20 an ounce on January 6, 2023, as the pandemic worsened and the US political turmoil increased. However, gold faced a correction in the following months, as the vaccine rollout boosted the economic outlook and the Fed hinted at tapering its stimulus.
Gold found support around $1,800 an ounce in the second half of the year, as the Delta variant of the coronavirus triggered new lockdowns and restrictions in some countries. Gold also received some support from the geopolitical tensions between the US and China, and the uncertainty over the US debt ceiling and fiscal stimulus.
Gold regained its momentum in December, as the Fed’s dovish statement and the Omicron variant of the coronavirus raised doubts about the strength and durability of the economic recovery. Gold broke out of a triangular consolidation pattern that had formed since August, and closed above the key resistance level of $2,050 an ounce on December 14, 2023.
Gold targets higher levels in January
Technical analysts say that gold’s breakout has opened the door for further gains in January. They point out that gold has cleared the 50-day, 100-day, and 200-day moving averages, which are now acting as support levels. They also note that gold has formed a bullish golden cross, which occurs when the 50-day moving average crosses above the 200-day moving average.
According to some analysts, gold could target the next resistance level of $2,100 an ounce, which coincides with the 61.8% Fibonacci retracement of the decline from the record high to the low of $1,677.60 an ounce in March 2023. If gold breaks above this level, it could challenge the all-time high of $2,089.20 an ounce.
However, some analysts warn that gold could face some headwinds in January, as the market awaits more clarity on the Fed’s policy outlook and the impact of the Omicron variant on the global economy. They also caution that gold could face some profit-taking and volatility, as the trading volume and liquidity tend to be lower in the holiday season.
