These Developments and Levels Are Important For The Gold Price Next Week!

The gold price took a sharp U-turn after dropping to $1,750 earlier in the week. Market analyst Eren Sengezer notes that risk aversion amid rising inflation fears has boosted the yellow metal, with the next upside target for gold at $1,835.

What happened in the markets last week?

The analyst reminds that gold fluctuated in a relatively tight channel in the first half of the week, but dropped to its weakest level in two months at $1,753 late Wednesday. However, the precious metal managed to make a decisive recovery and broke above $1,800 on Friday, ending a four-week streak of losses.

After moving sideways on Monday and closing with little change, gold came under bearish pressure on Tuesday. Data from the US revealed that producer prices rose at the strongest pace in more than a decade as the Producer Price Index (PPI) rose 9.6% year-on-year in November. Investors began pricing in a hawkish view of Federal Reserve policy, with the price of gold dipping towards the lower end of its two-week range at $1,770.

cryptocoin.com As we reported on Wednesday, the Fed announced that it will double its tapering rate to $30 billion a month from mid-January. More importantly, the updated Summary of Economic Forecasts, dubbed the ‘dot plot’, showed that policymakers’ median forecasts point to three rate hikes in 2022. The hawkishness of the Fed’s policy statement caused gold to drop to $1,753, its weakest level since early October.

At the press conference, FOMC Chairman Jerome Powell stated that it would not be appropriate to raise the policy rate before the cut was completed and that the market pricing of the rate hike as early as March has not changed. Additionally, the 10-year US Treasury yield failed to rise above 1.5%, allowing gold to reverse its direction.

On Thursday, the Bank of England (BOE) increased its policy rate by 15 basis points and said inflation could reach 6% by April 2022. Meanwhile, the European Central Bank (ECB) announced that it will end the Pandemic Emergency Purchase Program (PEPP) in March. To offset the impact of policy tightening on the markets, the ECB has decided to increase its purchases under the Asset Purchase Program (APP) to €40 billion in the second quarter, from €20 billion at present. Going forward, the bank plans to reduce purchases to €30 billion in the third quarter and €20 billion in the second quarter. Regarding the inflation outlook, the ECB revised its 2022 HICP forecast to 3.2% from 1.7% in September.

Adding to inflation fears, reports suggesting that the Covid-19 Omicron variant is much more contagious than the Delta variant weighed heavily on market sentiment in the second half of the week. The UK reported more than 80,000 confirmed cases on Thursday, and the vaccine manufacturers’ preliminary findings show that Omicron is much more resistant to the two vaccines than previous variants. Reflecting the risk-averse market environment, global stock indices suffered heavy losses and gold continued to gain strength towards the end of the week.

What will be on the agenda of the markets next week?

Risk perception will continue to impact financial markets early next week in the absence of top-level macroeconomic data releases. If investors continue to be concerned about the potential negative impact of the Omicron variant on activity and the inflation outlook, gold is likely to be in demand as a traditional safe-haven.

On Wednesday, the US Bureau of Economic Analysis will release its final forecast for third-quarter Gross Domestic Product (GDP). Investors expect annual GDP growth to remain unchanged at 2.1% and the market reaction to be muted.

On Thursday, the Personal Consumption Spending (PCE) Price Index, the Fed’s preferred gauge of inflation, will be looked at for fresh momentum. On an annual basis, the Core PCE Price Index, which excludes volatile food and energy prices, is expected to rise to 4.5% from 4.1% in November. The analyst states that before the Christmas holidays, market participants may ignore this inflation report as they already know what the Fed’s plan to control price pressures looks like, summing it up as follows:

In short, market sentiment and technical signals will influence the valuation of gold towards 2022.

Gold price technical analysis and gold sentiment survey

Market analyst Eren Sengezer noted on Thursday that gold closed above the 200-day SMA for the first time since the end of November and climbed to the December high of $1,814 on Friday. According to the analyst, the 38.2% Fibonacci retracement level of the latest uptrend seems to have formed resistance near this level. The analyst draws attention to the following levels:

If the pair breaks above and confirms as new support, it could target $1,835 (Fibonacci 23.6% retracement). On the downside, $1,800 (psychological level, Fibonacci 50% retracement, 50-day SMA, 200-day SMA) is aligned as important support. As long as this level holds, buyers are likely to remain in control of gold’s move.

Meanwhile, the analyst states that the Relative Strength Index (RSI) indicator on the daily chart is holding above 50, confirming the view that the bullish momentum is increasing, and points to the following levels:

Below $1,800, $1,780 could be seen as the next support (Fibonacci 61.8% retracement).

The FXStreet Poll also points to a bullish trend in the near-term, but shows that gains may remain limited. The analyst states that the average targets for one-week and one-month views are listed as $1,818 and $1,822, respectively.

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