Gold started the new year cautiously and suffered heavy losses on Monday. However, buyers managed to hold the key $1,800 level and gold climbed as high as $1,830 mid-week before prices came under downward pressure again. However, bullion fell sharply on Thursday’s higher US Treasury yields and failed to rebound convincingly despite disappointing Friday’s Nonfarm Payrolls Data, according to market analyst Eren Sengezer.
“The rise in interest rates continued to be a pressure factor for gold prices”
After losing strength ahead of the New Year holiday, the dollar made a decisive recovery in the first trading day of 2022 and forced gold to push down. The US Dollar Index (DXY) is up nearly 0.6%, following the previous week’s single-day decline. The analyst states that the benchmark 10-year U.S. Treasury yield rose nearly 8% at the start of the week, helping the dollar find demand while gold put additional weight on its shoulders.
On Tuesday, data released by ISM revealed that the Prices Paid component of the December Manufacturing PMI report fell sharply to 68.2 in December from 82.4 in November. According to the analyst, as this data eased inflation concerns, the dollar rally lost its strength and helped gold enter a decisive recovery period.
cryptocoin.com As we reported, the minutes of the FOMC’s December policy meeting, released late Wednesday, showed that policymakers saw fit to begin shrinking the balance sheet right after the first rate hike. The surprisingly hawkish tone of the statement triggered a sharp rise in US T-bond rates, causing gold to reverse its direction. Meanwhile, ADP reported that private sector employment in the US rose 807,000 in December, compared to analysts’ estimate of 505,000.
The probability of a March rate hike by CME Group’s FedWatch Tool climbed above 70% early Thursday and pulled gold below $1,800. ISM’s Services PMI report showed that price pressures in the services sector remained high in December, with the 10-year US bond yield hitting 1.75%, its highest level since April. The analyst evaluates the impact of the rise in interest rates as follows:
Gold’s inverse correlation with US T-bond yields remained intact in the second half of the week, forcing the yellow metal to drop to its weakest level in more than two weeks below $1,790.
Nonfarm payrolls in the United States rose by just 199,000 in December, below experts’ estimates of 400,000, according to a monthly publication by the U.S. Bureau of Labor Statistics. On a positive note, the Unemployment Rate fell to 3.9% from 4.2% in November, and monthly wage inflation as measured by Average Hourly Earnings rose from 0.4% to 0.6%. The analyst interprets the employment data as follows:
While the dollar faced modest selling pressure after the mixed employment report, the 10-year US T-bond yield held above 1.7%, capping gold’s upside.
What’s on the agenda for next week?
On Wednesday, the U.S. Bureau of Labor Statistics will release December Consumer Price Index data. In November, the annual CPI rose to 6.8% from 6.2% in October, but the market reaction was largely muted. However, data close to 7% could allow US T-bond rates to rise as investors are pricing in three rate hikes and balance sheet flow begins in 2022, according to the analyst. On the other hand, a soft CPI inflation figure may open the door for a short-term recovery for gold prices.
The next high-level data release will be Friday’s US Retail Sales data. While this report alone is unlikely to meaningfully change the Fed’s policy outlook, the analyst notes that optimistic data could help the dollar outperform its rivals, and vice versa. The analyst summarizes the impact of the developments as follows:
Unless investors change their minds about the timing of the Fed’s rate hike, gold’s recovery attempts will remain technical.
Gold prices technical view
Market analyst Eren Sengezer states that the Daily Relative Strength Index (RSI) indicator remains just below 50. According to the analyst, the main development showing the bear market is that gold closed below the 200-day SMA on Thursday and has not been able to retrace that level so far. Eren Sengezer draws attention to the following technical levels:
On the downside, initial technical support is aligned at $1,780. With a daily close below this level, additional losses could be seen towards $1,770 and $1,753. On the other hand, buyers may show interest in the precious metal if it manages to reclaim $1,800 and starts using this level as support. Above these hurdles, $1,815 and $1,830 are listed as strong resistances.
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