These Developments Will Determine Gold Prices Next Week!

Gold wiped out all its gains since the beginning of the year in three days as the US Federal Reserve doubled its hawkish policy outlook. The yellow metal climbed to $1,853 on Wednesday, its highest since November, but lost more than 3% to end the week in negative territory below $1,800.

A look at what happened in the markets last week

On Monday, data from the US revealed that private sector business activity grew at a much softer pace in January than in December, with Markit Manufacturing PPMI and Services PMI falling to 55 and 50.9, respectively. Markets remained risk-averse amid weak data, and US Treasury yields continued to drop, allowing gold to extend the previous week’s gains. Although markets remained relatively calm in the absence of top data releases on Tuesday, bullion managed to climb above $1,850 for the first time in nearly two months.

cryptocoin.com As we reported, the Fed announced on Wednesday that it has not changed its policy settings and said its quantitative easing (QE) program will end in early March as planned. “Economic activity and employment indicators continued to strengthen,” the statement said. But at the press conference, FOMC Chairman Jerome Powell’s remarks on the policy outlook triggered a dollar rally and caused gold to fall sharply.

Jerome Powell downplayed the dismal labor market data and said they had ‘some room’ to raise rates without hurting jobs. The President also noted that wages have risen at the fastest pace in recent years. Additionally, Powell implied that policymakers favored a rate hike in March but were reluctant to reject a 50 basis point hike. Finally, he explained that after the first rate hike, they would shift their attention to balance sheet reduction, adding that they would need two meetings to come up with a plan.

These hawkish comments caused Wall Street’s main indexes to continue to lose and gave support to the dollar. Benchmark 10-year US Treasury bond yield, after falling to 1.7% at the beginning of the week, rose by more than 5% and regained 1.8%. On Thursday, the US Bureau of Economic Analysis (BEA) reported that the US economy grew 6.9% year over year in the fourth quarter. With this data, which far exceeded the 5.5% market expectation, the US dollar continued to outperform its rivals and forced gold to extend its decline.

What will be on the agenda next week?

ISM will release Manufacturing and Services PMIs next week. But considering how easily the dollar erodes the negative impact of weak Markit PMI numbers, these data are unlikely to hurt the dollar significantly, even if they lag behind market consensus, according to market analyst Eren Sengezer.

On Thursday, the European Central Bank (ECB) and the Bank of England (BOE) will announce their policy decisions. The ECB is not expected to make any changes to its policy settings. The analyst states that a neutral stance can help the dollar maintain its balance by emphasizing the policy difference with the Fed. BOE seems ready to raise the policy rate by 25 basis points for the second time in a row. His analyst comments:

Should the BOE refrain from raising rates, GBP/USD could face heavy bearish pressure and make it more difficult for gold to rebound. On the other hand, a hawkish policy outlook with a rate hike may limit the dollar’s gains, at least in the near term.

On Friday, the U.S. Bureau of Labor Statistics will release its January employment report. Non-Farm Employment is expected to increase by 238,000 in January following dismal gains in November and December. The low bar indicates there is room for positive surprise and stronger-than-anticipated NFP pressure should support the dollar in the near term. On the other hand, a third consecutive disappointing data could put pressure on the dollar and open the door for a recovery in gold price, according to the analyst.

Still, Powell made it clear that they prioritize inflation control over employment and that investors can ignore insufficient growth in payrolls. However, Average Hourly Earnings will be the key data point to watch. Annual wage inflation is expected to rise from 4.7% to 5.1%. Fed policymakers are concerned that a steady rise in wages could keep consumer inflation high for an extended period of time.

Gold technical outlook and gold sentiment survey

The analyst states that gold broke below the ascending trend line from mid-December, the 200-day SMA and the 100-day SMA, and the Relative Strength Index (RSI) indicator on the daily chart has dropped below 50 confirming the bearish trend. According to the analyst, the RSI staying above 30 indicates there is more room to the downside before technically oversold. Eren Sengezer draws attention to the following technical levels:

Initial support is located at $1,770. If this level turns into resistance, the next bearish target can be seen at $1,755. On the upside, the 100-day SMA forms an initial resistance at $1,795. Even if gold retraces this level, the 200-day SMA remains at $1,805 as the next hurdle. Only a one-day close above the latter could attract buyers and help gold shake off the bearish pressure.

Gold is likely to remain under bearish pressure in the short term, according to the FXStreet Forecast Survey. However, the analyst states that the average target in the one-week outlook is aligned at $1,781, indicating that losses may remain limited. The bearish trend is also evident in the one-month outlook, according to the survey.

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