Gold rebounds after sharp downturn: Is $3,000 back on the cards?

Gold prices have been on a turbulent journey, reflecting the volatile intersection of geopolitical tensions, monetary policy shifts, and market sentiment. Tuesday marked another volatile session for gold as prices dipped to their lowest level in a week, around $2,600. This decline came amid reports of a ceasefire agreement between Israel and Lebanon, which tempered safe-haven demand. 

The Middle East de-escalation added to Monday's $100 drop, a sell-off fueled by optimism around the truce and President-elect Donald Trump’s nomination of Scott Bessent as Treasury Secretary. Bessent’s nomination signaled a potential shift in fiscal policies, reducing the urgency for investors to hold gold as a safe haven.

Yet, not all risks have dissipated. The protracted Russia-Ukraine war and fears of inflation stemming from Trump’s proposed tariffs on major trading partners continue to underpin a case for gold’s appeal. Last week, bullion experienced its steepest weekly drop in more than three years, largely because Trump’s policies are seen as potential drivers of inflation—factors that could influence the Federal Reserve’s next moves.

Gold bounces off $2,625 towards $2700

As of midweek, gold is rebounding buoyed by a weaker US Dollar, which recently retreated from a one-year high. A softer dollar makes gold more affordable for international investors, offering some relief to the metal after its recent losses.

According to Daniel Pavilonis, senior market strategist at RJO Futures, Gold technically looks like it wants to get back near that $2,700 level. Supporting this outlook, Goldman Sachs reiterated its bullish stance on Monday, forecasting gold to rally to $3,000 an ounce by the end of next year. The bank highlighted factors such as central bank purchases, expected Fed rate cuts, and Trump’s inflationary policies as reasons to "go for gold." 

This optimism aligns with other market signals. While bullion has declined about 7% from its record high last month, Goldman analysts view the sell-off as an “attractive entry point to buy gold.” Saxo Capital Markets strategist Charu Chanana echoed this sentiment, noting that “gold’s fundamentally supportive factors never went away.”

Fed policy and market dynamics: Key to Gold’s path forward

The Federal Reserve’s monetary policy remains a key driver for gold’s future trajectory. The latest Federal Open Market Committee (FOMC) minutes indicated that the Fed may pause rate cuts if inflation remains elevated, keeping rates at restrictive levels. However, nearly half of swaps traders still anticipate a rate cut next month before Trump’s inauguration, which could benefit gold as a non-yielding asset.

Gold’s upside potential is also tied to geopolitical developments. Reports suggest North Korea may deploy 100,000 troops to aid Russia in its war on Ukraine, adding another layer of uncertainty. While easing tensions in the Middle East temporarily dampened haven flows, broader risks—such as the ongoing Russia-Ukraine conflict—continue to support gold’s role as a safe haven.

Technical analysis: Can Gold break higher?

With prices stabilising, market participants are eyeing key inflation data and global developments for fresh cues. While rising US Treasury yields and a cautious Fed stance pose challenges, many analysts remain optimistic about gold’s longer-term prospects.

Goldman Sachs’ $3,000 forecast for 2025 underscores the bank’s confidence in the metal’s resilience amid global economic shifts. For now, gold appears to be navigating a delicate balance of supportive fundamentals and near-term constraints. 

Price has been moving inside a narrow channel, now bouncing towards the upper boundary of the channel with bullish pressure evident. Prices are also slightly above the 100-day moving average, adding to the bullish narrative. However, RSI being flat at the midline hints at a possible slow down. 

Buyers could be met with resistance at the $2,700 and $2,750 price points, while on the downside, sellers could be held at the $2,600 level, with a further move down likely to hold at the 100-day moving average.

Source: Deriv MT5

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