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Fundamentals indicate gold to remain in downtrend

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Nhim Kosol, PPLS business manager

Fundamentals indicate gold to remain in downtrend

In January, the price of gold saw a continued rally from its major support zone of $1,617 per ounce in early November 2022 to a high of $1,959.57 in early February.

On the gold price charts of trading platforms – particularly the Meta Trader 5 of PP Link Securities (PPLS) – the whole of January saw a bullish trend, with an opening price of $1,826.30 before closing at $1,949.88.

The markets back then foresaw no further interest rises by the Federal Reserve, with rates expected to be kept steady throughout 2023, before a loosening of its tightened monetary policy at the end of the year.

But on February 2 the Fed raised the rate by 0.25 per cent from the previous 4.5 per cent to combat inflation, which was at 6.4 per cent in January, down 0.1 per cent from the previous December.

PPLS business manager Nhim Kosol said this turned January’s bullish sentiment regarding gold bearish over concerns of further rate hikes.

In February, gold was trading lower at $1,804.44, with the monthly price closing at $1,826.44, before continuing to rally in March to its high of $1,858, with a low of $1,809.

Moreover, Non-Farm Payrolls (NFP) data released on February 3 reported an actual January employment growth of 517,000, higher than the forecast 193,000, while the previous actual figure for December was 260,000.

Such better-than-expected job additions suggest a strong employment market and would imply long-term pressure on the Fed as it fights to get inflation down near its two per cent target, Kosol added.

MarketScreener reported Fed Chair Jerome Powell as saying that the central bank would consider raising interest rates by a larger half percentage point this month and was likely to lift rates higher than previously expected this year to cool an economy that has shown surprising strength.

The market is awaiting the release of the February NFP data this evening, with 224,000 jobs forecast to have been added to the US economy.

“If the NFP data meets this or surprises the market, the Fed will raise the rate of interest as expected to tackle inflation,” says Kosol.

Technically, Kosol said gold was trading below the 200-day moving average, indicating it was still in a downtrend.

“With such trends and the aforementioned fundamentals, investors could this week trade gold by placing a sell order at any price in between $1,815 to $1,790, putting the stop-loss function at $1,825,” Kosol said.

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