Gold is facing its third consecutive week of losses after January, which saw its best start to the year in more than a decade. And now all eyes are on next week’s US inflation report. Analysts say this could be the next big catalyst for the precious metal.
Gold price under pressure from hawkish Fed
After gold surged to $1,975 last week, April COMEX Gold Futures is now trading at $1,870.70 an ounce, down 5.3% from that peak. “The dollar is coming back and the Fed is staying hawkish, which is putting pressure on gold,” says Frank Cholly, senior market strategist at Rjo Futures.
cryptocoin.comAs you’ve followed on , the bullish sentiment for gold began to change after a strong US jobs report showed 517,000 job gains in January last week. This was confirmed by Federal Reserve Chairman Jerome Powell’s concerns that the central bank would have to raise interest rates further if the markets continued baffled by the U.S. economy reversal. Everett Millman, precious metals specialist at Gainesville Coins, comments:
This fits really well with the definition of what we call the Fed’s speech, which is the Fed chairman’s strategy of speaking from both sides of his mouth so that markets get both signals. The hope is that everything remains stable and that both parties have something to hold on to. That’s exactly what Powell did. The most likely outcome here is that the Fed will continue to raise interest rates until the economy stalls.
How does the US CPI data affect the price of gold?
Next week, the gold market is gearing up for a series of key macro data. According to Daniel Ghali, senior commodity strategist at TD Securities, Tuesday’s CPI report is data to watch as it could be the next big catalyst for the precious metals space. In this context, the analyst makes the following statement:
We need an important catalyst for the subsequent sales activity to emerge. This could come in the form of next week’s CPI data. At the same time, gold won’t see much selling activity next week unless the CPI is a big enough shock. Even as the CPI report continues to show slowing inflation, the Fed won’t be ready to take its foot off the gas just yet. Gold has a little more downside.
Market consensus forecasts predict annual inflation to slow to 6.2% in January from 6.5% in December. Capital Economics analysts comment:
We expect inflation to fall more than the consensus forecast should raise commodity prices as it will further quell fears of a hawkish Fed and higher US interest rates.
“We are comfortable if the yellow metal stays above $1,800!”
Daniel Ghali also points out that a large group of investors still considers gold overvalued. But from a streaming perspective, it’s unclear who would be willing to sell. Recent central bank gold purchases supported gold. Now the market is waiting to see if this trend will continue.
Ghali says the participants that drove the gold rally above $1,800 were central banks and shorts. He also says, “If this trend continues, I would feel more comfortable with gold staying above $1,800.” The World Gold Council amended its gold demand trends report this week, stating that central bank gold purchases were at a record high in 2022, with 1,136 tonnes purchased.
Gold price levels
Ghali states that the potential trading range for gold is currently quite wide, with strong support at $1,800 and resistance at $1,900. Cholly is looking at the $1,850-1,855 range. He also said, “The moving averages are important. We are currently sitting on day 50. And $1,812 for 200 days. Somewhere between these two signs, there is market equilibrium. Gold will consolidate and recover from these levels,” he says.
Weekly gold technical analysis
Technical analyst Christopher Lewis describes what he saw in the technical drawing of gold as follows. Gold markets initially rebounded during the week, but later returned their gains. At this point, the market started to form a bit of an upside hammer. This of course is a negative side as long as we don’t go over the top. If we were to do this, we could rally to the top of the previous candlestick. However, it seems more likely that we will see more downward pressure at the moment. If we go below the candlestick bottom, it is very likely that we are looking at the critical $1,800 level.
The $1,800 level obviously depends on a lot of psychology and will make good headlines. However, if we go down, we could even open the possibility of a drop to the 200-Week EMA. As of the current situation, the weekly candlestick indicates that last week’s weekly candle may make some sense, and we probably still have a long way to go. When you look at the daily chart, the whole week was a complete disaster as we initially tried to pick up for several days in a row and then just turn around and try to fall. The daily candlestick pattern is in multiple back-to-back inverted hammer positions.
Looking at this chart, I also understand that the $2,000 level is at the top of the overall range it has been in for several years. So we may have reached the top. However, a stronger US dollar can also add more confidence to the idea, and it seems the Forex world is looking to buy cheap dollars too.
Key data for next week
Other data to look out for include US retail sales, producer price index and industrial production. James Knightley, ING chief international economist, comments:
January activity data will be strong. The contrast between the incredibly cold mid-December weather and a very mild January couldn’t be more stark. This means that consumption will be delayed, plus better weather means more people getting outside, which in any case will increase January spending. We already know that auto sales are very strong, and this alone will greatly increase retail sales.
- Tuesday: US CPI
- Wednesday: US Retail Sales, NY Empire State Production Index, US Industrial Production
- Thursday: US PPI, US jobless claims, US housing and building permits, Philly Fed Production Index
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