Gold price rally limited by Fib 0.786 level due to strong U.S. employment data
Gold Rally Stalls at $2,700 Amid Overbought Conditions
Gold (XAU/USD) has shown impressive strength in recent days, rising by 2.5% last week and reaching a four-week high near $2,700 per ounce.
However, with the price now trading around $2,690 as of the early European session on Monday, the outlook for gold remains delicate.
The rally in gold price has been fuelled by a combination of factors, particularly the geopolitical uncertainty surrounding the upcoming U.S. presidential inauguration. As David Meger, Director of Metals Trading at High Ridge Futures, notes, the uncertainty surrounding President-elect Donald Trump’s policies has prompted an increase in safe-haven demand, helping to sustain the bullish trend for gold.
Gold price outlook: $2,700 technical barrier holds as RSI signal overbought
Despite the positive momentum, gold has faced resistance at the 0.786 Fibonacci retracement level near $2,700. This technical barrier has capped price gains, indicating a potential pause in the upward move. Furthermore, the broader market picture suggests that gold is in overbought conditions. The Relative Strength Index (RSI) on the 4-hour chart now shows that the recent rally is at its peak, indicating that the bullish momentum could soon wane. Additionally, stronger-than-expected U.S. employment data last week has reinforced expectations that the Federal Reserve may not cut interest rates as aggressively this year, reducing the appeal of gold as a non-yielding asset. Traders now expect the Fed to cut rates by just 30 basis points in 2025, down from earlier expectations of a 45-basis-point cut before the U.S. nonfarm payroll (NFP) report.
Gold price dynamics (November 2024-January 2025). Source: TradingView.
If gold continues to correct, a key support level to monitor is the 50% Fibonacci retracement around $2,650. This level could provide a cushion for gold, as the market digests the impact of the recent data and technical resistance at higher levels. On the other hand, if gold continues to rise, a more critical level to watch is the December 2024 high at $2,730, which, if surpassed, could signal further bullish movement. For now, while gold’s safe-haven appeal remains intact due to ongoing political uncertainty, the current technical indicators suggest a potential retracement in the short term.
Geopolitical uncertainties and concerns over proposed tariffs boosted gold’s appeal as a safe-haven asset. This led gold to rise above the 0.618 Fibonacci retracement level at $2,670 per ounce in early January.
