The latest inflation figures have stressed markets in general. In this environment, gold stands at a ‘major turning point’, according to analysts, who did not rule out the possibility of a deeper selling wave if gold falls below $1,800.
“This is important enough to break the back of gold!”
The biggest surprise this week was the hawkish Federal Reserve meeting minutes, which revealed that ‘few’ FOMC members were heading for 50 basis points, rather than the more dovish 25 basis point gain adopted at the February meeting. On top of that, the annual core PCE price index, the Fed’s preferred measure of inflation, accelerated in January to 4.7%, compared to an expected 4.3%.
There is a big reset on how high interest rates will go. People now think over 6%. “This is important enough to break gold’s back,” says Edward Moya, senior market analyst at OANDA. Moya adds that if there is more momentum towards $1,800, gold could get ‘ugly’ and prices could drop another $50.
“The good news for gold is…”
“This is a very important point here,” said Michael Boutros, Forex.com senior technical strategist. If we make the weekly close below $1,807-1,805, you risk a big drop. And you might be looking at $1,750,” he comments. It is the macro view that puts pressure on gold. cryptocoin.comAs you follow in January, the precious metal rallied on the idea that the Fed could cut interest rates by the end of 2023. Boutros says the truth is now starting to reveal itself, adding:
And the inflation figures we get today show this. And this adjustment to higher rates is hitting the markets. The good news for gold is that the repricing of these rates is also affecting the equity space. If the S&P 500 and Dow continue to drop, gold could gain some support as a security trade. This can put some sort of base under the price of gold.
It works in favor of gold in terms of geopolitical tensions not giving up and finding a bottom in this downtrend. People talk big words like ‘nuclear threats’. It’s the first anniversary of the war in Ukraine and it’s time for a reality check. The threat is there. “If this threat becomes more apparent on a global scale and these talks continue to deteriorate, it will be effective at some point,” Boutros says.
“The volatility in the gold market is far from over!”
Gainesville Coins precious metals expert Everett Millman says the volatility in the gold market is far from over, with prices likely to drop as soon as they recover. Millman explains his views on this issue as follows:
Given such rapid selling and recovery in times of panic due to the nature of gold, there isn’t a very strong base at the moment. I wouldn’t be surprised if I see gold fall below $1,700 with the expectation that it will come back pretty quickly if there is a climb in Ukraine.
Gold will remain fragile in the short term, as markets realize the difficulty of reducing inflation to the Fed’s 2% target. Moya said, “There is some support at $1,750. But you probably don’t have anything substantial up to $1,730. It’s a big change in emotion,” he says.
Weekly gold technical analysis
Technical analyst Christopher Lewis draws the technical picture of gold this week as follows. Gold markets have dropped significantly during the trading week as we seem to be attempting to descend to the 50-Week EMA. Keep in mind that gold is highly sensitive to the US dollar and the US dollar is in the midst of rising again. However, I think this correction continues, especially when trying to close towards the bottom of the weekly candlestick. However, it’s also worth noting that there’s a significant amount of support just below it, and I think that comes into the picture.
The $1,800 level is a big, round, psychologically significant figure, and a lot of people will pay attention to it. You also have 50% Fibonacci there, so it makes sense that there would be some interest in gold in that area. A move down opens the possibility of a drop to the $1,750 level. This is around the 61.8% Fibonacci level, which of course draws a lot of attention on its own.
However, I think it’s probably just a matter of time before we see support. But the next week or 2 may continue to be on the slightly softer side. Watch out for the US Dollar, because it might give you some insight into where we’re headed in the long run. It’s also a volatile thing, of course, as people worry about interest rates and of course the Fed’s monetary policy tightening.”
Next week’s data to follow
Analysts will be watching the planned macro data for next week for any signs of weakness after a solid start to the year. James Knightley, ING’s chief international economist, comments:
We warned that the sharp contrast between the winter-like cold conditions of December and the almost spring-like temperatures of January plays a large role in the strength of the data. Next week, we’ll give a first test of this hypothesis with the ISM’s February manufacturing and services sector reports.
- Monday: US durable goods orders, US pending home sales,
- Tuesday: US CB consumer confidence
- Wednesday: US ISM manufacturing PMI
- Thursday: US jobless claims
- Friday: US ISM non-manufacturing PMI
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