Gold Pauses Rally as Dollar and Yields Strengthen
Gold pulled back from recent highs as the US dollar and bond yields rebounded on renewed inflation concerns. The University of Michigan’s Inflation Expectations survey surged to 4.3% from 3.3%, raising fears of persistent price pressures. Strong wage growth in January (0.5% month-over-month) further fuelled expectations that the Federal Reserve will maintain its higher-for-longer stance on interest rates. Speculation about inflationary policies under a potential Trump administration has also added to the hawkish outlook. As a result, markets have repriced rate-cut expectations, lifting the dollar and weighing on gold. Key upcoming events in the week ahead include US CPI data, Federal Reserve Chair Jerome Powell’s testimony, and corporate earnings, all of which could drive volatility.
Technically, gold remains in a strong uptrend, repeatedly hitting all-time highs. However, signs of exhaustion are emerging. The Relative Strength Index (RSI) is overbought on multiple timeframes: the daily RSI hovers around 75, the weekly RSI is above 70 with negative divergence, and the monthly RSI has surpassed 78. Such levels suggest a pullback or consolidation is likely, though not guaranteed.
Gold has reached the 127.2% Fibonacci extension of its October-November correction at $2859. If prices extend higher, the next target is the 161.8% extension at $2946. On the downside, initial support lies at $2845, followed by $2790 (October high) and the $2710-$2725 zone.
Overall, gold’s bullish momentum remains intact, but traders should be cautious of near-term corrections, especially given extreme RSI readings and shifting macroeconomic factors.
By Fawad Razaqzada, market analyst with FOREX.com
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The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.