Trade of the Week: Gold hits all-time high before rocket ship falters

• Gold hits all-time high above $2130

• Precious metal boosted by Fed cut bets

• Key US data including NFP could trigger volatility

• Prices firmly bullish but RSI signals overbought

• Key levels of interest at $2100, $2070 and $2035

Gold kicked off Monday shooting for the stars, soaring more than 3% to create a fresh all-time high above $2130 before surrendering most of those gains.

Everyone wanted a piece of the precious metal last Friday after dovish comments from Jerome Powell hit the dollar along with Treasury yields. Investor appetite for gold seems to have intensified over the weekend with bulls stepping into higher gear as rate-cut bets intensified.

Despite the sharp pullback in prices, gold prices remain fundamentally bullish due to geopolitical risk and growing expectations for a US rate cut in 2024. Indeed, the precious metal is up roughly 15% since the October low and still trading a distance away from the psychological $2000 level.

Taking a quick look at the technicals, prices remain on an uptrend but this could be threatened if the current daily candle stick forms a shooting star pattern.

Note: A shooting star is a bearish candlestick that signals a potential reversal. It can be identified with a long wick and small-bodied candlestick.

This could be another wild week for gold as the focus falls on key US economic reports that may influence expectations around what the Fed will do beyond 2023. 

Here are some events that may rock gold over the next few days:

1. US data + November jobs report

It is a data-heavy week for the US economy with all eyes will be on the latest non-farm payrolls report on Friday. 

As far as markets are concerned, the Federal Reserve’s hiking campaign is over with the next move being a rate cut in 2024. Dovish comments by Powell last Friday simply reinforced these expectations with traders now pricing in a 67% probability of a 25-basis point cut by March 2024.

The real market moving this week will most likely be November’s jobs report. Markets expect the US economy to have created 200,000 jobs last month while unemployment is expected to remain unchanged at 3.9%.

• Should overall economic data disappoint along with the NFP report, this could support gold prices as rate-cut bets grow.
• Strong-than-expected economic data including the jobs report may weaken gold, especially if the dollar stabilizes as traders push back rate-cut bets.

2. Geopolitical tensions

The end of the truce deal between Israel and Hamas could fuel risk aversion and investors’ concerns. 

A truce deal between both sides that began on November 24th ended last Friday after negotiations reached a deadlock. The temporary truce initially sparked hopes for a long-term peace deal that could reduce geopolitical risks. However, with the conflict between Israel and Hamas resuming this could send investors rushing towards safe-haven destinations like gold.

• More signs of escalating tensions in the Middle East may sap risk sentiment, keeping gold prices buoyed as a result.
• Any signs of easing tensions could boost market sentiment, dragging gold prices lower.

3. Technical forces

After gaining aggressively during early trading on Monday, prices came crashing down, giving back most of the gains.

Gold remains bullish on the daily charts as there have been consistently higher highs and higher lows while prices are trading above the 50, 100, and 200-day SMA. However, the Relative Strength Index (RSI) is above 70, indicating that prices are heavily overbought. In addition, the current daily candle stick could be a threat to bulls if it closes as a shooting star pattern.

• Prices could rebound back towards $2070 and $2100 regions if $2035 proves to be a reliable support.
• A decline back below $2035 may trigger a selloff towards $2010 and $2000, respectively.