Gold Has Major Dip. Will it Last?

Gold prices in AUD experienced a drop of $127 the last 8 days amid easing safe haven buying, coinciding with a strengthening US Dollar and a bounce in the Aussie Dollar.

This decrease follows a period of safe haven buying that pushed gold prices above $3170 AUD last month, triggered by the October 7 attacks in Israel. The situation in Israel has somewhat stabilised as the conflict between Israel and the Hamas militant group remains primarily confined to the Gaza Strip. We have yet to see the threat of Hezbollah's more advanced weaponry cause the war to expand and intensify.

Major US equity indices in the past day saw slight gains, with the technology sector leading the way in the S&P 500, while utilities experienced declines. The S&P 500 and Dow Jones Industrial Average have both seen seven consecutive sessions of growth, while the Nasdaq Composite recorded eight days of continuous gains. That being said, the S&P now faces the ominous "double-top" pattern.

The US dollar has been recovering after a recent dip caused by the Federal Reserve's dovish stance (at least this is what traders interpreted). Despite the Fed's decision to leave interest rates unchanged and Chair Jerome Powell hinting at a potential end to rate hikes, the dollar received support from hawkish statements made by other Fed members. This is a common tactic that the Fed plays: The Fed chair and other Fed members do controlled releases of hawkish and dovish contradictory comments which can whipsaw markets.

A highly anticipated conference appearance by Federal Reserve Chair Jerome Powell last night did not provide any specific comments on monetary policy or the economic outlook. Powell is scheduled to speak again at 6:00AM this Friday, Melbourne/Sydney time.

Market analysis indicates that investors are now anticipating rate cuts as early as May, with the CME Group's FedWatch tool showing a nearly 49% probability of a cut of at least 25 basis points, up from about 41% a week earlier. Despite these expectations, cautious remarks from several central bank officials have kept investors uncertain. Fed Governor Michelle Bowman even raised the possibility of further rate hikes, citing the robustness of the US economy.

It will be interesting to see if Gold/AUD is able to go much lower. It is approaching a major support level of about $3020 per ounce (shown in yellow on the chart above) which it was previously trapped below for roughly 5 months. Powell’s speech tomorrow could be the deciding factor. If his comments are perceived as dovish again, we could see the gold price rebound.