Gold Trend Shifts with Upbeat Economic News

The upbeat new year continues with the International Monetary Fund adding to the positive news. The IMF confirms in its report its belief that global economic growth is likely to be better than expected. The IMF’s Chief Economist, Mr. Gourichas, advised that the organization revised its forecast for the first time in a year.

The IMF previously advised a 2.7% global growth rate in October 2022. The International Monetary Fund is revising the expectation to 2.9% and 3.1% for 2024. Mr. Gourichas also advised that markets should still maintain their cautious approach as the revised figures are still lower than the average seen between 2000, and 2019. The IMF has raised the Global Gross Domestic Product output for the next 2 years. The change in opinion is based on resilient US spending, employment and the re-opening of China.

The prospect of better economic growth and a lower risk of experiencing a recession can affect the pricing of both commodities as well as equities. Let’s take a look at how the price has been affecting Gold. 

Gold - IMF and Rates Decision Pressure the Trend 

The price of Gold is declining during this morning’s Asian session and has formed its second consecutive decline this week. The asset has declined by 0.50% throughout this morning’s session which has already outpaced yesterday’s decline of 0.31%. Gold's price has seen a change in momentum and direction since last Thursday. The better economic outlook, earning reports and the pricing of the US Dollar is influencing the change in price condition.  

Gold is considered a safe haven asset that is used by investors to hedge against inflation. Most likely when currencies are underachieving or interest rates are not protecting against price increases. After the change in the Federal Reserve stance in November, the price of Gold has increased by more than 19%.

XAU/USD 6-Hour Chart on January 31st 

The price condition has now turned from a bullish trend to a retracement. The pressure exerted from the earning reports from the past week resulted in a higher demand for risk-based assets such as stocks, instead of safe haven statuses.  Gold’s price may be pressured if the stock market continues to perform better than in 2022 and if we continue to see signs of a better economic outlook. A bullish stock market and a better-performing economy will result in a lesser need for safe-haven assets. 

Of course, the pricing of the US Dollar, which is inversely correlated with Gold will also play a major role. Though investors will also be eager to see how the European Central Bank and Bank of England are likely to proceed regarding their monetary policy. Investors are almost certain the Federal Reserve will opt for a 25 basis point hike, but uncertainty surrounds the ECB and Bank of England’s rate decisions.  

The US Commodity Futures Trading Commission has confirmed that most of the market continues to speculate that the price will eventually decline. Nonetheless, the number of contracts speculating an increase has increased over the past week, regardless of the change in circumstances. 

Crude Oil Down for a Third Day 

The price of Crude Oil has declined for a third consecutive day reaching a 20-day low. The price is currently at $77.25 and is currently trading within its fifth impulse wave. The fifth wave in a short space of time indicates the strength of the price movement but at the same time a higher risk of a pullback. 

Crude Oil’s price is not currently obtaining indications of being oversold on the RSI on Intraday or longer-term timeframes. In addition to this, the price is still currently holding onto bearish indications from both the Stochastic Oscillator and also Moving Average Crossovers. As we can see technical analysis is pointing to the continuation of a downward trend, but traders should note the instrument’s tendency to retrace. 

Crude Oil 3-Hour Chart on January 31st 

The price continues to be affected by Russia flooding the market with a large amount of supply. However, investors are not yet certain how the EU and G7 sanctions may affect this next month. As mentioned yesterday, the price is being pressured by the latest statistics showing that Russia’s exports increased by 50% in January. 

Though investors should also note that positive news can be found. China’s economic data continues to improve after the removal of most COVID-19 restrictions. January Purchasing Managers’ Index for both the manufacturing and services sectors performed better than expected. Though investors are questioning whether this is enough to push prices higher and if buyers will indeed be willing to buy above $82-83 per barrel.

Summary:

• The International Monetary Fund is revising the expectation to 2.9% and 3.1% for 2024.
• The better economic outlook, earning reports, and the pricing of the US Dollar is influencing the change in Gold’s trend.  
• Crude Oil declines for a third day as Russia floods the market because sanctions come into effect. 
• China’s January Purchasing Managers’ Index for both the manufacturing and services sectors performed better than expected.