A Falcon Federal Reserve pushed the gold price back below $1,800. However, the precious metal managed to partially retain its gains towards the end of the week. Analysts warn of additional volatility in the last full week of the year.
Fed moves on without signaling pivot or pause
Major news markets are still digesting the aggressive Fed message as rates climb above 5% next year. cryptocoin.comAs you follow, Fed Chairman Jerome Powell said that interest rates will stay there ‘for a while’. Also, the median forecast for next year suggests that interest rates will likely go up to 5.1%.
Despite lower inflation figures in November, the Fed continues on its way without any pivot or pause signals for the start of next year. Many in the hawkish community were surprised when Powell said on Wednesday that rates were not ‘restrictive enough’ even after 425 basis points hikes this year. Jerome Powell made the following statement:
It is no longer so important how fast we go. It is much more important to consider what the final level is. And then, at a certain point, the question becomes: How long are we going to be restrictive? This will be the most important question.
Gold price slides down from multi-month high
According to the CME FedWatch Tool, markets are expecting a 25 bps increase with a 75% probability for the February Fed meeting. It also predicts a 25% chance of a 50 bps increase. Chris Weston, Pepperstone’s head of research, comments:
Powell downplayed the extent of the cuts predicted in the dot plot for 2024. He also suggested that ideally they would not stop until they reached 2% inflation.
In response to the tight monetary policy path ahead, gold fell from several-month highs. It declined below $1,800 on this move. Towards the end of the week, the precious metal regained some of its lost gains. Thus, February Comex gold futures were down 0.63% week on week at $1,799.30.
“This situation is quite negative for the gold price”
Gainesville Coins precious metals expert Everett Millman comments on the latest developments as follows:
Gold is sending a lot of mixed signals. He seems to like the uncertainty and the idea that the Fed is trying to strike the right balance with rate hikes. The idea that interest rates will remain high for a longer period of time is quite negative for the equilibrium gold price.
“Yellow metal will become a safe haven next year”
The Fed also projects GDP growth of only 0.5% and core PCE 3.5% in 2023. It’s also crucial to consider the context of the Fed’s message. Markets are entering a period when it is the last full trading week of the year. OANDA senior market analyst Edward Moya notes that gold is trading quite volatile. Moya is showing a bearish trend in the short term. However, the long-term outlook is bullish. In this context, the analyst makes the following statement:
We will see gold traders act cautiously here. Due to lighter liquidity, and still more one-way trade, there will be pressure on gold. Right now, we need to price out more Fed tightening, more ECB tightening and interest rate hikes.
Edward Moya adds that gold will become a safe haven next year. In addition, the analyst makes the following assessment:
Gold will start to see more safe-haven flows next year as crypto begins to see more pressure and economic data rapidly deteriorates. One signal to watch is ETF buying. You should see transactions gaining momentum. I am in bullish position below for the first half of next year.
Price predictions for gold
Edward Moya says that as we enter the next week, the support of gold is at $ 1,750. He also states that earnings will likely be capped at $1,840.
Everett Millman notes that the initial resistance is $1,800. He also adds that this level will remain quite stubborn. Meanwhile, the first support is at $1,775. However, Millman warns that if this level fails, gold will likely fall to $1,715.
Weekly gold technical analysis
Technical analyst Christopher Lewis draws the technical picture of this week’s gold as follows. Gold markets have been very volatile throughout the week. It first climbed above the $1,820 level and showed signs of life again as we tried to break out. By breaking above the level at one point, the market looked poised to go much higher later on. However, when we closed our business, we were again below this level. Maybe we just don’t have enough momentum to hit the road for the weekend, maybe even the holidays.
Note that the market will continue to be very noisy. However, keep in mind that liquidity will become an issue over the next few weeks. If we drop below the bottom of the candlestick and, perhaps more importantly, last week’s hammer, that would be a sign that we have a deeper correction. Watch out for interest rates! Because there is a possibility that it will start to rise again. It is possible that this will also be bad for the gold market in general.
On the other hand, if we break the weekly high, that would likely open the way for a move to $1,875. This is a major resistance and breakout area below which will start a big move. As things go on right now, I predict we will see a lot of sideways trading between today and the New Year holiday. Keep in mind that many traders don’t want to put a lot of money into the market at this time of year. Because they start to focus more on the holidays and lack of liquidity.
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