Gold continued to rise on Monday and Tuesday after closing the previous week on solid footing, but lost its bullish momentum around $1,830, according to market analyst Eren Sengezer. Gold regained momentum and touched its highest level since June at $1,868 on Wednesday as data from the US showed consumer inflation hit its highest level since 1990. cryptocoin.com As we reported, the precious metal managed to close in the positive territory on Wednesday and Thursday, before moving to the consolidation phase on Friday, although it pulled back from this level.
What happened in the markets last week?
The benchmark 10-year US Treasury yield fell below 1.5% on Monday and lost more than 3% on a daily basis, allowing gold to rise earlier in the week. In the absence of top-level macroeconomic data releases, changing interpretations of the Federal Reserve’s policy outlook have caused the dollar to lose some altitude. Louis Federal Reserve Chairman James Bullard told Fox Business Network that he expected to see two rate hikes in 2022, but Vice President Richard Clarida argued that benchmarks for rate hikes could be met by the end of next year.
Data from the US on Tuesday showed that the Producer Price Index (PPI) remained unchanged at 8.6% year-on-year in October. The analyst states that although this data came in below the market expectation of 8.7%, it failed to trigger a noticeable market reaction and the modest weakness of the dollar allowed gold to stay in the positive territory.
Annual inflation, as measured by the Consumer Price Index (CPI), hit 6.2% in October, the highest level since 1990, the US Bureau of Labor Statistics said on Wednesday. Core CPI, which excludes volatile food and energy prices, also climbed to its strongest level in more than three decades at 4.6%. This pressure has caused investors to begin pricing in an earlier-than-expected rate hike and U.S. Treasury bond yields soared. However, the analyst makes the following assessment:
It was weakened by the impact of the inverse correlation between the precious metal and US T-bond rates and the strong demand for gold as a traditional inflation hedge. Additionally, bullish momentum gained strength as the key resistance zone failed at $1,830 and gold rallied to a five-month high near $1,870.
Trading remained sluggish due to Thursday’s Veterans Day holiday, and gold struggled to hold on to its daily gains. The analyst states that the 10-year T-bond rate opened on Friday with a rising margin, and the profit received before the weekend forced gold to correct. According to CME Group’s FedWatch Tool, markets are currently pricing in more than a 70% chance of the Fed raising interest rates by June 2022. On Friday, the University of Michigan announced that its Consumer Confidence Index fell to 66.8, the lowest level since November 2011. The statement underlines the following:
One in four consumers showed inflationary declines in their living standards in November, with lower-income and older consumers expressing the biggest impact.
What’s on the agenda for next week?
Retail Sales and Industrial Production data from China on Monday are expected to show further loss of momentum in the world’s second largest economy. According to the analyst, if the market deteriorates at the beginning of the week, gold is likely to continue to find demand.
On Tuesday, the U.S. Census Bureau will release October Retail Sales data. The analyst emphasizes that weaker-than-expected pressure could revive concerns about inflation, which negatively affects consumer activity, and provide support for gold. On the other hand, the analyst reminds that an optimistic data can help risk flows return to the markets and limit the rise of gold.
CPI data from the UK and the Eurozone on Wednesday and Thursday, respectively, will be looked at to give a new impetus. While data from Europe generally do not have a noticeable effect on the market valuation of gold, the analyst states that the following issues should be considered:
The data could highlight policy divergence and push the dollar higher against other major currencies, putting pressure on gold. Gold may remain resilient against the dollar if CPI figures reveal that price pressures are stronger than expected.
In summary, market participants will remain focused on inflation and what this means for the policy outlook for major central banks in the near term. Comments from FOMC policymakers will play a key role in determining whether the Fed will prioritize controlling inflation over supporting the economy. The analyst’s assessment is as follows:
Gold may hold its position as a desirable asset amid undesirable inflation, but the dollar’s unrelenting strength is likely to allow XAU/EUR and XAU/GBP to outperform XAU/USD.
Gold technical outlook and gold sentiment survey
Market analyst Eren Sengezer states that after the six-day rally, the Relative Strength Index (RSI) indicator on the daily chart has reached 70 and that Friday’s drop indicates a technical correction rather than a change in direction. However, gold seems to have lost its bullish momentum near a key Fibonacci retracement level and buyers may want to stay on the sidelines before committing additional gains. Eren Sengezer draws attention to the following technical levels in his analysis:
On the downside, $1,830 (previous resistance, 38.2% retracement of the Fibonacci April-June uptrend) is aligned as key support. If the bulls continue to defend this area and don’t let it turn into resistance, gold is likely to regain its traction. Below this level, $1,800 (psychological level) could be seen as the next support before $1,790 (100-day SMA, 200-day SMA). Above $1,865 (Fibonacci 23.6% retracement), resistances are found at $1,880 (static level) and $1,900 (psychological level).
The Gold Sentiment Survey points to a bullish trend in the near-term, but the average target of $1,865 suggests that gold may remain in the consolidation phase next week.
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