Fed Relief and Debt Fears Keep Gold on Track

Gold bounced back on Thursday after an early stumble that briefly knocked it through key support. What initially appeared to be the start of a heavier pullback turned out to be another false break, with buyers quickly stepping in to push prices higher again.

The session opened soft, with gold sliding to about US$3,634 an ounce. That dip took it under both the 100-hour and 200-hour moving averages, levels it had managed to defend for nearly a month. Traders initially worried the move might mark a shift in trend, but the weakness didn’t last long. The market eventually reversed course and reclaimed those averages, a sign that the bid for gold is still there. This is the second technical fake-out we have seen in the last couple of weeks, as fundamentals have been overpoweringly bullish.

This recovery comes just a day after the Federal Reserve wrapped up its latest policy meeting. The Fed’s message wasn’t dramatically different from what markets had expected, which in itself was a relief. The focus quickly returned to the broader path for interest rates. As usual, a cut or no cut is relatively priced in, but the following speech signalling future cuts carries a lot of weight. One positive for gold investors is that once the central bank begins cutting, the assumption is that it will keep easing, and that’s the story gold traders continue to lean on. Some analysts still talk openly about the prospect of prices pushing toward the US$4,000 mark.

The next series of data releases will start with weekly jobless claims. This could swing sentiment a bit, but may not overpower the overall trend. The bigger test will come with broader economic numbers over the next few weeks, which will show whether the Fed can safely start cutting without sparking inflation concerns again.

Gold continues to find willing buyers whenever it looks shaky. Thursday’s reversal is another reminder that the market remains more comfortable holding a bullish bias than abandoning it, even in the face of occasional short-term weakness. Bond market and debt market fears have been compounding the outlook of a general liquidity increase to allow gold to remain on a hot streak.