Gold price forecast as the US dollar index (DXY) rebounds

By:
on Jan 5, 2024
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  • Gold price is on track for its first weekly drop since mid-December.
  • The US dollar index (DXY) has bounced back this week.
  • There are signs that investors have embraced a risk-off sentiment.

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Gold (XAU/USD) price has pulled back this week as traders embraced a risk-off sentiment. It was trading at  $2,040 on Friday as it headed to its first weekly decline since mid-December. This price is much lower than its all-time high of $2,147.30. 

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Risk-off sentiment

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Traders have embraced a risk-off sentiment this week as hopes of swift Federal Reserve rate cuts faded. This is view has been seen across all financial assets. In the stock market, key indices like the Dow Jones and Nasdaq 100 have dropped in the past three straight days. 

Similarly, in the cryptocurrency market, top popular coins like Bitcoin, Solana, and Avalanche have all pulled back. Bitcoin price retreated from Tuesday’s high of $45,000 to $42,000 even after Jim Cramer touted it.

Meanwhile, the fear and greed index has retreated from the extreme greed zone of 80 to the green area of 74. The VIX index and the US dollar index (DXY) bounced back in the past few days.

This price action is mostly because of the ongoing fear that the Federal Reserve will not move quickly enough to cut interest rates. In a statement this week, Richmond Fed’s Tom Barkin warned that the Fed could hike interest rates.

The other key catalyst for gold price has been the ongoing crisis in the Middle East, where Houthi attacks have slowed transit through the region. As a result, companies like Maersk, Evergreen, and MSC have paused using the Red Sea. 

This trend has led to higher sea shipping costs globally. The Drewry Shipping Index has surged to $1,661, the highest point in a few months. Further, the price of crude oil has held quite steady, with Brent and West Texas Intermediate (WTI) moving to $78 and $73, respectively.

Gold price reacts to these events because of the impact on the Federal Reserve. Unlike metals like copper and lead, gold has no industrial use. Instead, it is often seen as an alternative to the US dollar. 

The next key Gold news will be the upcoming US nonfarm payrolls (NFP) data. Economists polled by Reuters expect the data to reveal that the economy added 170k jobs in December as the unemployment rate rose to 3.8%.

Gold price forecast

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Gold price

Gold chart by TradingView

The daily chart shows that gold prices have come under pressure in the past few days. In this period, gold has retreated below the key support level at $2,080, its highest point on May 4th last year. On the positive side, gold has remained above the 50-day and 100-day Exponential Moving Averages (EMA).

Gold has also formed a double-top pattern, which is a bearish sign. In price action analysis, this pattern is often a bearish sign. Therefore, the outlook for gold is now neutral. The key level to watch will be at $2,081. A move above this price will continue rising, with the next key level to watch will be at $2,146.

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