"Haste makes waste." Gold believed in its strength too early and is now paying for overconfidence. The precious metal is poised to close January in the red zone for the first time in the last four months, against the backdrop of the first strengthening of the U.S. dollar since September and an increase in the yield of U.S. Treasury bonds. However, XAU/USD is not in a hurry to fall too sharply. Physical demand from China and an undisclosed buyer keeps the bulls afloat.

According to the World Gold Council's research, global demand for the precious metal decreased by 5% to 4,448 tons in 2023. However, taking into account over-the-counter markets, the overall interest in gold surged to a record 4,899 tons.

Dynamics and Structure of Gold Demand

Central banks showed increased activity, but in 2024, the World Gold Council expects a reduction in the volume of their purchases to historical average levels of 500 tons. Last year, China's investment demand increased by 28% to 280 tons, largely compensating for a similar decrease in Europe. Jewelry consumption in China increased by 10% to 630 tons. According to the World Gold Council, China is the key to what happened with the precious metal in 2023. It should not be considered a primary factor in pricing, but China was able to build a foundation for XAU/USD.

The surge in gold to record highs at the end of last year was due to expectations of the Federal Reserve's monetary policy easing in 2024, leading to a weakening of the U.S. dollar. However, according to MarketGauge, the market has preempted itself. Investors have priced in 5–6 acts of monetary expansion into XAU/USD quotes, although the Federal Reserve is likely to stop at three. As a result, gold risks coming under pressure in the first half of 2024.

Dynamics of the probability of a change in the Fed's interest rate

Even a bullish stance on precious metals, such as ActivTrades, forecasting its rise to a new historical high of $2,200 with an average price of $2,100 per ounce in 2024, warns of the potential strengthening of the U.S. dollar. According to the company, there is currently a sense of deja vu for the U.S. dollar. Namely, if in 2023, most investors expected a recession and were wrong, now the market sentiment is leaning towards a soft landing. However, an error is not ruled out, and, in reality, the U.S. economy may take off. As a result, the dollar will retain its royal mantle, and plans for XAU/USD bulls will have to be postponed for better times.

It must be acknowledged that the rally in the USD index in January became the main obstacle for gold. Investors sold the U.S. dollar too eagerly in the fourth quarter, but the U.S. economy retained its strength, and the market is reconsidering its views on the fate of the federal funds rate.

Technically, on the daily chart of the precious metal, there is consolidation in the range of $2,004–$2,061 per ounce. However, a drop below moving averages and the fair value at $2,028 will increase the risks of continuing the decline and provide a basis for forming shorts.