Possible Short Squeeze in the Market, Emphasizing Buying the Dips

Commodity

Central Bank

Summary:

In yesterday's trading, both physical and futures gold prices registered gains slightly exceeding $20. The most active Comex contract, February gold futures, rose $20.60 on the first day, marking a 1.03% increase. Physical or spot gold increased by $20.80, trading at $1998.40.

BUY XAUUSD

EXP

EXPIRED

1986.00

Entry Price

2032.00

1979.00

4214.13 +16.22 +0.39%

Pips

EXPIRED

1979.00

2030.18

Exit Price

1986.00

Entry Price

2032.00

Fundamentals

The rise in gold prices yesterday was the result of various factors. Firstly, economic reports indicated a contraction in the US economy due to the recent Fed rate hikes. Secondly, the Fed released minutes from the last FOMC meeting, maintaining the current interest rate level. Thirdly, a report from the World Gold Council revealed increased buying by central banks globally, setting a new record for purchases in the first nine months of this year. Finally, apart from the Fed, central banks worldwide have begun cutting interest rates.

The collective impact of these events propelled gold futures prices to break the $2,000 per ounce barrier.

The World Gold Council updated its list of gold reserves for various countries, showing many central banks actively increasing their gold holdings. In the first three quarters of 2023, global central bank purchases reached a record 800 tons, with China, Poland, and Singapore being the major buyers. This pace far exceeds the purchasing total for the same period in 2022.

In yesterday's economic data, the Fed released minutes from the latest Federal Open Market Committee (FOMC) meeting. The minutes supported current expectations that the Fed's pause will not only continue but, more importantly, indicated that the Fed may have concluded the aggressive rate hikes that began in March 2022.

A key point from the October 31 to November 1 meeting minutes was the unanimous agreement to proceed with caution, as indicated by the consensus that "the Committee could afford to be patient."

The minutes also emphasized that if progress toward the inflation target is deemed insufficient, the Fed is prepared to implement further tightening measures. This stance aligns with the Fed's ongoing commitment to combat inflation, as reflected in their view that "participants noted that further tightening of monetary policy would be appropriate if incoming information indicated that progress toward the committee's inflation objective was insufficient."

Committee members also unanimously agreed to maintain a restrictive policy stance until inflation continues to decline to the Fed's target. This underscores the Fed's focus on ensuring adequate management of inflation pressures before considering any policy loosening.

However, in the latest meeting records, there was a significant shift in the Committee's views. The previous stance suggested that "one more increase in the target federal funds rate at a future meeting would likely be appropriate," but this was notably absent in the latest documents. This omission may indicate a slight softening of the FOMC's hawkish stance, suggesting a potential shift in future policy decisions.

Following the release of the FOMC meeting minutes, the CME FedWatch tool's expectations showed a 94.8% probability of a pause in rate hikes, down from 99.8% a week ago.

Several central banks have already begun cutting interest rates, contributing to gold futures breaking the $2,000 per ounce mark and further fueling bullish sentiment. In fact, the number of central banks implementing rate cuts has surpassed those implementing rate hikes for the first time since January 2021.

While the Fed's monetary policy did not mention any imminent rate cuts, the fact that many other central banks are cutting rates is positive. Although the European Central Bank has not yet started cutting rates, there is a general expectation that the ECB has concluded its rate-hiking cycle and may begin cutting rates as early as the second quarter of 2024.

Possible Short Squeeze in the Market, Emphasizing Buying the Dips_1

Technical Analysis

From a technical perspective, gold prices today continued to touch a three-week high at $2,006. The bulls maintain an overall technical advantage in the near term. The next upward price target for the bulls is a close above the solid resistance level at the October high of $2,019. The next short-term downside target for the bears is to push prices below the solid technical support level at the November low of $1,935. The first resistance level is the recent high of $2,009, followed by $2,019. The first support level is yesterday's low of $1,979, followed by this week's low of $1,967. In terms of trading, buying the dips remains the primary strategy. (Note: Due to the upcoming Thanksgiving holiday in the US, market conditions such as lower liquidity may lead to increased volatility, triggering stop-loss orders.)

Trading Recommendations

Trading Direction: Long

Entry Price: 1986

Target Price: 2032

Stop Loss: 1979

Valid Until: 2023-12-06 23:55:00

Support: 1988, 1979, 1967

Resistance: 2009, 2019, 2032

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