In European trading on Monday (January 29), spot gold prices rose all the way from the Asian morning, once refreshing a three-day high to $2033.77 / ounce, up nearly 0.7%. It is currently trading around $2030 / oz.

Over the past two weeks, spot gold has moved back below its 20-day moving average, but has managed to hold above the January 17 low of $2,001. In general, the movement of spot gold prices has been driven by opposing fundamental factors and has remained range-bound.

Rising real yields on 10-year U.S. Treasury notes and rising geopolitical risk premiums have created a floor and ceiling for gold of $2,000 and $2,040, respectively.

Negative factor - the US 10-year real yield moved higher

A slew of recent US economic data shows that the US economy remains resilient, particularly in terms of consumer confidence and spending, with retail sales surging to an 11-month high of 5.6% in December from a year earlier, and consumer confidence picking up sharply at the start of the New Year. The University of Michigan Consumer Sentiment Survey data surged to 78.8 in January 2024, its highest level since July 2021 and beating expectations of 70.

Given that the US economy still appears to be in a Goldilocks (an economy in which high growth and low inflation coexist and interest rates can remain low) environment, there will be less reason for the Fed to implement the first rate cut at the upcoming March FOMC meeting. The odds of a quarter-point cut in the federal funds rate in March have fallen to 47% from about 70% a month ago, according to the CME FedWatch tool, which extrapolates from 30-day Fed funds futures price data.

The reduced pricing likelihood of the first Fed funds rate cut in March caused the real yield on the US 10-year Treasury note to rise, rising 25 basis points to a nearly one-month high of 1.90% on Thursday, January 25, 2023. So far, the rebound has been limited by the 50-day moving average, which is converging with recent range resistance at 1.93 percent.

The stronger real yield on the U.S. 10-year Treasury has increased the opportunity cost of holding gold, which has limited gold's gains.

Positive factor - rising geopolitical risk premiums

Geopolitical risk factors in the Middle East and the Red Sea routes show no signs of abating significantly. The steady stream of headlines suggests continuing tensions among stakeholders.

Gold has formed a support or floor at the psychological level of $2,000.

From a technical analysis point of view, gold's 20-day rolling historical volatility has fallen to a near 4-month low since the end of September 2023, which indicates that gold's price action has compressed into a relatively low range to maintain volatility, and the time is ripe for prices to break out of the range. With the market already fully pricing in the Federal funds rate at 5.25%-5.50%, the Fed's monetary policy guidance and Fed Chairman Jerome Powell's press conference on Wednesday, January 31, may reinforce the direction of the volatility outbreak.

Prior to the Fed decision, gold's positive momentum seemed to be returning. The daily Relative Strength Index (RSI) momentum indicator has formed a higher low near 50 since January 17, 2024.

Therefore, as long as the key medium-term support at $2,000 holds, gold is likely to see a bullish volatility breakout above $2,040, and the next intermediate resistance will be at $2,060 and $2,090. On the other hand, if $2,000 is not held, then the bullish scenario will fail and the corrective decline in the major uptrend phase will be prolonged, exposing the next medium-term support at $1,975 (near the 200-day moving average).