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XAUUSD Analysis: Dollar Strength Did Not Prevent its Gains

Gold [XAU/USD] holds gains despite USD strength post-Fed. S&P 500 falls 1.6%, Nasdaq down 2.2%. Tech giants' mixed results impact markets. Gold's uptrend remains intact amid geopolitical tensions, central bank purchases. Eyes on US jobs data.

  • Despite the strength of the U.S. dollar following the U.S. central bank announcement, the gold price remained within its recent gains which extended to the resistance level of $2056 per ounce, the highest for it in two weeks, before settling around the $2038 per ounce level at the start of Thursday's trading. 
  • Losses in the U.S. stock market had worsened after the Federal Reserve indicated it was unlikely to cut U.S. interest rates in March, as many traders had hoped.
  • As a result, the 500 index fell 1.6% in its worst day since September. Its shares fluctuated between more modest and more severe losses during the fragile afternoon period as traders deferred bets on when the U.S. Federal Reserve would start easing its key interest rate from its highest level since 2001. 

XAUUSD Analysis Today - 01/02: Dollar Strength Spurs Gains (Graph)

The decline in big tech stocks had pushed the Nasdaq Composite index to a market-leading 2.2% loss. The Dow Jones Industrial Average, which focuses less on tech stocks, fell 0.8% or 317 points.   

Shares of , one of the market's heaviest weighted companies, fell 7.5% despite announcing stronger than expected profits and revenues in the last quarter. Analysts pointed to some worrisome trends about the profitability of Google's parent company from advertising. However, the bigger challenge may have been the high expectations the company faces after its shares rose last year. Shares of other big tech companies that also disproportionately formed part of the 500 index’s rise to a record high on Wednesday faced high expectations.   

Microsoft stock fell 2.7% despite reporting higher than expected profits and revenues. One analyst even described its quarterly report as "a work of art that should be hung in the Louvre".   

Tesla stock, another member of the group of stocks dubbed the “Magnificent Seven”, fell 2.2%. The stock was responsible for the majority of the 500 index’s returns last year, and three other members are scheduled to report their latest quarterly results today, Thursday: , and , the parent company of and . Expectations are high for them as well. Alongside the Magnificent Seven stocks, U.S. stock indices rose to record levels due to hopes that slowing inflation would convince the Federal Reserve to cut U.S. interest rates several times this year. Such cuts would ease pressure on the economy and encourage investors to pay higher prices for stocks.   

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    But the U.S. Federal Reserve left its key rate unchanged on Wednesday and clarified that it does "not expect it will be appropriate" to cut interest rates "until it gains greater confidence inflation is moving sustainably toward" its 2% target. For his part, Federal Reserve Governor Jerome Powell said: "We are not declaring victory at all." He said it is unlikely the Fed will reach this level of comfort by its next meeting in March.   

    He added: "That's perhaps not the most likely case," leading stocks to fall in late trading.   

    But Powell also said Fed officials already have some confidence that day will come. They just need to see more data confirming inflation is sustainably heading down. He said: "We have confidence." "It has been building, but we want greater confidence."   

    At the same time, Powell acknowledged the difficult position the Fed is in, with risks arising from moving too fast and too late, although it is "a good picture overall" of the economy at present. Cutting interest rates too early could ignite inflationary pressures, while acting too late means unnecessary pain for the economy and job market.   

    Gold Price Expectations Today: 

    Recent gold price performance confirms the strength and validity of our technical perspective that the gold price may remain in its uptrend despite the strength of the U.S. dollar, as we mentioned in the live trading recommendations, and that it will remain supported by the increasing global geopolitical tensions and the increase in banks' gold ingot purchases for hedging. Therefore, the closest support levels may remain new buying opportunities, and currently the closest gold support levels are $2022, $2000 and $1985 respectively. On the other hand, and according to the daily chart performance below, the resistance levels of $2055 and $2070 will remain supportive of the bulls' control. The gold market will be affected by the U.S. jobs announcement tomorrow. 

    Ready to trade today’s Gold prediction? Heres a list of some of the best XAU/USD brokers to check out. 

    Mahmoud Abdallah
    About Mahmoud Abdallah
    Mahmoud has been working fulltime in the Foreign Exchange markets for 12 years. Offers his analysis, articles and recommendations at the most renewed Arabic websites specialized in the global financial markets, and his experience gained a lot of interest among Arab traders. Works on providing technical analysis, market news, free signals and more with follow up for at least 12 hours a day, and aims to simplify forex trading and the concept of trading for his audience.

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