Gold and Bitcoin investors are assessing the US inflation report, the Federal Reserve’s policy outlook, and its potential impact on the global economy. The gold price fluctuated wildly throughout the week. Bitcoin saw a sharp drop from above $ 18 thousand to below $ 17 thousand. There are no high-impact data releases in next week’s economic calendar. Therefore, according to market analyst Eren Şengezer, the ease of trading conditions until the holiday season will likely make it difficult for gold and Bitcoin to make decisive moves in either direction.
Gold and Bitcoin surge after soft US CPI
China took additional steps towards reopening earlier this week. However, the gold price struggled to gain traction as investors avoided betting on the improved demand outlook ahead of key macroeconomic data and central bank events. The benchmark 10-year US Treasury yield strengthened on the previous Friday’s recovery gains. Thus, it rose above 3.6%. Gold fell nearly 1% on Monday after a four-day winning streak.
cryptocoin.comAs you follow on Tuesday, the US Bureau of Labor Statistics reported that the US CPI fell to 7.1% year-on-year in November from 7.7% in October. More importantly, the Core CPI increased by 0.2% month-on-month. This was the smallest monthly increase in core inflation since August 2021. The US dollar came under heavy bearish pressure on soft CPI figures. Also, the 10-year US Treasury yield fell nearly 4% to below 3.5%. In contrast, gold and Bitcoin recorded impressive gains. The yellow metal hit a five-month high at $1,824 before retreating to $1,810. Bitcoin, on the other hand, jumped from just under $ 17 thousand to above $ 18 thousand.
Fed’s hawk dot chart sends gold and Bitcoin south
In line with the expectations, the Fed increased the policy rate by 50 bps after the December policy meeting. In this move, it decided to raise the interest rates to the range of 4.25%-4.5%. The revised Projection Summary (SEP) showed that the median terminal rate estimate rose to 5.1% from 4.6% in September’s SEP. In addition, the Core Personal Consumption Expenditures (PCE) inflation forecast for the end of 2023 was revised from 3.1% to 3.5%. It also cut its 2023 growth forecast from 1.2% to 0.5%. With the initial reaction to the Fed’s hawk dot chart, the 10-year U.S. Treasury yield hit 3.6%. This caused gold and Bitcoin to turn south.
But during FOMC Chairman Jerome Powell’s press conference, the US dollar struggled to maintain its strength. This allowed gold to close the day above $1,800. Thus, the gold price erased most of its daily losses. Bitcoin failed to follow gold at this point and remained in a bearish trajectory. Powell reiterated that the historical records themselves strongly warn against premature easing. However, he acknowledged that if inflation data continue to soften, the peak rate will fall.
Gold showcased a roller coaster act
The negative change in risk sentiment gave support to the US dollar on Thursday. Disappointing Retail Sales and Industrial Production data from China, combined with the Fed’s hawkish outlook, has rekindled concerns about the global economic slowdown. The US Dollar Index (DXY) rose sharply and retraced most of the weekly decline. After that, gold came under heavy bearish pressure and lost about 2% on the day.
S&P Global PMI surveys showed that economic activity in the private sector contracted at an accelerating pace in early December. After that, the US dollar came under moderate bearish pressure. With this effect, the gold price showed a recovery on Friday.
What’s on next week’s agenda for gold and Bitcoin?
The Conference Board will release December Consumer Confidence Index data on Wednesday. In November, the one-year inflation expectation component of the survey rose to 7.2% from 6.9% in October. It is possible that another increase in this component will cause US T-bond yields to rise even higher. In this case, it is possible to put pressure on gold and Bitcoin. The opposite is also true. On Thursday, the US economic chart will include the latest revision to annualized third-quarter Gross Domestic Product (GDP) growth. According to the analyst, it is unlikely to trigger a reaction as it is expected to match the previous 2.9% estimate.
Ahead of the weekend, the US Bureau of Economic Analysis will release November PCE Price Index figures. Markets expect annual Core PCE inflation, the Fed’s preferred inflation indicator, to drop to 4.6% from 5% in October. Core PCE inflation is expected to increase by 0.4% on a monthly basis. The analyst says that if the monthly figure stays below market consensus, gold could gain traction given the market feedback on soft CPI figures. It also evaluates:
However, it is possible that trading conditions will weaken ahead of the Christmas holidays and therefore the reaction may be short-lived. On the other hand, a stronger-than-anticipated monthly Core PCE inflation would be counterproductive. So this is likely to put pressure on gold.
Market participants will also pay attention to the risk mood. After the dismal performance of Wall Street’s main indexes last week, investors are likely to open the door to a ‘Santa Claus rally’ by trying to take advantage of the low prices. The analyst states that if major stock indices in the US start to rise, gold will gain upward momentum.
Technical view of gold and forecast survey
The analyst draws attention to the following levels in the technical outlook of gold. The Relative Strength Index (RSI) indicator on the daily chart is above 50. Also, gold is hovering near the 200-day SMA. These also indicate an upward trend. Also, the 20-day SMA remained intact after Thursday’s sharp decline.
If gold stabilizes above $1,790 (200-days SMA) and this level is confirmed as support, it is possible to test $1,800 in the short term before targeting $1,830 and $1,860. On the downside, the $1,780/$1,775 area holds initial support before $1,740 and $1,720.
The Gold Forecast Survey points to an unbiased bias for gold in a one-week and one-month outlook. The quarterly outlook is bullish with the average target at $1,840.
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