With gold ending the week above $1,900, analysts are turning their attention to $2,000

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(Kitco News) – The gold market ended the week at a nine-month high as renewed safe-haven demand lifted prices above $1,920 an ounce, which some analysts highlighted as a key resistance level.

Analysts said growing economic uncertainty and changing market fundamentals could help prices fall to $2,000 sooner than expected.

February gold futures are set to close the week up about 1%, with prices last at $1,922.80 an ounce.

“There’s a pull to $2,000 and that’s only going to increase as prices continue to rise,” said Phillip Streible, chief market strategist at Blue Line Futures.

Gold’s afternoon rally came after US Treasury Secretary Janet Yellen sent a letter to Congress warning that the government could exceed the debt limit on January 19.

Fears that the U.S. could potentially default on its debt obligations have grown recently, as the slim majority of the Republican Party in the U.S. House of Representatives is expected to complicate negotiations. Some Republican politicians have already said that any increase in the debt limit must be accompanied by deep spending cuts.

“We knew debt was going to be an issue in 2023, but we didn’t expect it to become so prominent so quickly,” said Edward Moya, senior North American market analyst at OANDA. “The short-term reaction is warranted in gold, which shows how much uncertainty there is right now.”

However, Moya added that while near-term safe harbor demand continues to support gold prices, there are larger factors influencing the gold market.

“It’s too early to see how this will play out. In the short-term, it’s positive for gold, but if there’s any major chaos, it will support the dollar and weigh on gold,” he said.

For gold, Moya said, he sees some resistance at $1,950 an ounce, and if that breaks, there’s not much to stop the market from falling back to $2,000 an ounce.

“There’s a lot of momentum in the market right now and I think $2,000 is a target, it’s just a question of when we’ll get there,” he said.

Federal Reserve monetary policy remains a critical driver for gold

Looking at near-term volatility, analysts said the most significant impact on gold remains changing expectations about the Federal Reserve and easing inflation affecting bond yields and the US dollar.

Last week’s consumer inflation data showed that price pressures cooled in line with expectations, which some analysts said gave the Federal Reserve an opportunity to slow the pace of its aggressive monetary policy stance.

According to CME’s FedWatch Tool, markets see a more than 90% chance that the US central bank will raise the Fed Funds rate by 25 basis points next month.

Investors, speculating that the Federal Reserve is nearing the end of its tightening cycle, have pushed bond yields lower and weighed heavily on the US dollar.

The US dollar index looks set to end the week at a seven-month low as it tests support at 102 points.

Kevin Grady, president of Phoenix Futures and Options, said investors are seeing a fundamental shift in financial markets, supporting gold prices, even if market momentum appears to be technically overextended.

“I expected a fundamental shift in the market, and I think we’re starting to see that,” Grady said. “The bond market is signaling interest rates will be lower than the Fed says, and that’s bullish for gold.”

Pay attention to the US dollar; seems to be oversold

While there is scope for gold prices to rise next week, some analysts said investors should exercise some caution at these levels and not chase the market.

While many analysts are bullish on gold in the near term, they say investors should look to buy the precious metal as the precious metal falls.

Darin Newsom, chief market analyst at Barchart, said he sees gold prices higher as both the short- and medium-term trends are decidedly bullish.

However, he added that bullish investors may need to be flexible as gold could correct quickly. He said that the key to gold’s short-term momentum will be the US dollar, which he says is severely oversold. He noted that 102.17 is a significant pullback from last year’s historic rally.

“When [gold] decides to turn around and it could be a point next week, it could drop quickly,” he said.

Marc Chandler, managing director of Bannockburn Global Forex, said he had also seen the US dollar oversold. He noted that while inflation has cooled, the Federal Reserve is still expected to raise interest rates, which could help stem the dollar’s slide.

Follow Davos and economic data

Martin Luther King Jr. on Monday. While the US will see a shortened trading week with markets closed for the day, there will be plenty of economic data to digest throughout the week.

Analysts said the market could be sensitive to comments made during the annual World Economic Forum in Davos next week. The WEF has already expressed concerns about rising geopolitical uncertainty and the threat of persistent inflation. Analysts said any bleak outlook could add to gold’s safe-haven appeal.

Markets will also receive more retail sales figures, inflation data and regional manufacturing numbers from the New York Federal Reserve and the Philadelphia Federal Reserve.

Economists also said investors should keep an eye on the Bank of Japan’s monetary policy decision as it could provide some upward momentum for the US dollar, which in turn could affect gold.

Tuesday: Empire State manufacturing index, Bank of Japan monetary policy decision
Wednesday: PPI, Retail sales
Thursday: Philly Fed survey, weekly jobless claims, housing starts and building permits
Friday: Existing home sale

Disclaimer: The views expressed in this article are those of the author and may not reflect his views Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is for informational purposes only. It is not a requirement to make any exchange for commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accepts no responsibility for any loss and/or damage resulting from the use of this publication.

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