Gold Market Analysis: If it drops below $1,865, it will challenge the psychological $1,850 level
In the European market on Tuesday (January 10), spot gold continued to climb slightly by 0.28% to close at a lofty $1876.60. Expectations that the Fed will move interest rates continue to be a factor supporting gold’s rise.
On Tuesday, Powell spoke at the Riksbank’s “International Symposium on Central Bank Independence” in Stockholm. Initially, the market expected to extract from his speech some useful information on the direction of the Fed’s monetary policy. However, judging by the content of his speech, he did not provide too much publicity information for the market. In his speech, Powell said that price stability is the foundation of a healthy economy. In order to reduce inflation, unpopular short-term measures may be taken, but the Fed must resist expanding the scope of policy to solve other major social problems Under such circumstances, it is not appropriate to use relevant tools to promote the development of a green economy. There was no further elaboration on the economic outlook and monetary policy in this speech. Powell’s overall speech was neutral and didn’t have much impact on the gold market. Next, the US Consumer Price Index (CPI) for December this Thursday will be an event that the market will focus on. US inflation fell to 7.1% in November, the fifth consecutive month of deceleration and the lowest level since December 2021. Continuing signs of easing inflationary pressures in the world’s largest economy in the US have somewhat lifted market sentiment and stoked speculation that the Federal Reserve would be less aggressive. According to Bloomberg News, the annual rate of inflation in the United States in December last year is expected to fall further to 6.5%. If expectations materialize, it will mark a sixth consecutive month of decline and hit its lowest level since October 2021. Given the market’s sensitivity to all things inflation-related, this could lead to “explosive” volatility in financial markets . Further signs of easing inflation could fuel talk that the Fed will shift to more moderate rate hikes. Currently, traders see only a 27% chance of a 50 basis point rate hike in February, further supporting the bullish outlook for gold. On the other hand, a stronger-than-expected CPI report could revive bets on aggressive Fed rate hikes as investors question whether inflation is really stabilising. This scenario could lead to weaker gold prices as the dollar rebounds along with US Treasury yields.
Technically, gold prices are waiting for a new catalyst to clear the multi-month high of $1,880 an ounce again. The next target for gold bulls is $1,900 an ounce, a breach of which would open the door to a May 2022 high of $1,910 an ounce. The 14-day Relative Strength Index (RSI) was just below the overbought territory, indicating that gold prices have even more room to go higher. The upward sloping 50-day moving average has broken above the flat 200-day moving average. If the 50-day moving average eventually closes above the 200-day moving average, it will confirm the formation of a “golden cross” and reinforce the short-term bullish bias for gold prices. On the other hand, gold sellers could react to the $1880/oz level, causing a corrective pullback and a drop towards the previous session’s low of $1865/oz. If gold falls further, the price of gold will challenge the psychological level of USD 1,850/ounce. Once this level is lost, the possibility that the price of gold sells and falls to the 21-day moving average of USD 1.819/ounce cannot be ruled out.
Wang Gang, Guangdong Branch, Bank of China
Opinions are personal and do not represent those of the organisation
