Gold Market Review: Support around $1860.50, Beware Risk of Strong Retracement Triggered by US CPI in December
On Wednesday (January 11), spot gold reached a new high of USD 1,886.50 an ounce since May 6, and fell in the final stage, closing at USD 1,875.30. Traders continued to bet that US CPI data for December should confirm a further decline in inflationary pressures.
Gold has continued to rally in recent trading days, mainly as traders are betting that recent economic data will slow the pace of Fed rate hikes, recently leading to continued weakness in the US dollar index. Betting against the dollar rose to 30,457 contracts last week, the most since August 2021, according to the US Commodity Futures Trading Commission (CFTC).
Federal Reserve Chairman Jerome Powell said at an event at the Riksbank on Tuesday that unpopular short-term measures may be needed to stabilize inflation, while also emphasizing central bank independence. He did not address the issue of interest rate hikes at this event.
The US government is due to release US inflation data for December on Thursday, which could set the tone for the dollar’s next move. Economists expect US general consumer price index (CPI) and core CPI annual growth rate in December to continue to decline from 7.1% and 6.0% to 6.5% respectively and 5.7%.
JPMorgan Chase & Co. Sales and Trading believes that December US inflation data, due on Thursday, is likely to be lower than expected. The company sees a nearly two-in-three chance that Thursday’s data is within 10 basis points of consensus expectations, with a bias to the downside.
FXTM, a well-known institution, pointed out that from a technical point of view, with the hit of the “death cross” technical pattern, the US dollar index may experience more pain. With the 50-day simple moving average (SMA) falling below the 200-day SMA, this marks a bearish turn in the outlook for the dollar, a major trend reversal. FXTM also said that if US inflation cools down again on Thursday, the dollar could fall further. If the US dollar index falls below 103.00 and continues to weaken below this level, this could lead to the index falling further towards 101.30. As a result, it is evident that it will promote further strengthening of gold prices.
Technically, the daily chart shows that gold is trading well above its major moving averages, with the 20-day simple moving average (SMA) moving firmly to the upside and above the long moving average. term.
At the same time, technical indicators continued to extend into overbought territory, reflecting investors’ lack of selling interest, while maintaining the upward trend in gold prices. Judging from the 4-hour trend chart, there may be a small-scale profit adjustment in the gold price in the near term, but the downside is expected to be relatively limited.
Gold prices are bouncing back and forth in a tight $20 range, with technical indicators looking slightly overbought, but suggesting no new selling. At the same time, the gold price is holding the 20-period moving average around $1860.50/ounce to provide support.
Overall, gold bulls appear to have the upper hand for the foreseeable future. But we should also be wary of the risk of a sharp retracement in gold caused by the super strong CPI in the US tonight.
Wang Gang, Guangdong Branch, Bank of China
Opinions are personal and do not represent those of the organisation
