By Barani Krishnan
Investing.com – Gold has held onto the high of $ 1,700 despite the threat of a US rate hike moving ever closer.
But with longtime Fed boss Jerome Powell expected to release some of his more hawkish assessments of the economy in the coming days, one wonders where the yellow metal will be in a week’s time.
At Friday’s settlement, the most active US gold futures contract,, was up $ 8.10, or 0.5%, to $ 1,784.80 an ounce. For the week, it rose 0.1%.
The news of rate hikes is almost always bad for gold. This time around, however, bullion traders appear to be focused on the US inflation story, allowing gold to play its traditional role of hedging against this, although firm Fed action to turn things around could still be. be negative for the yellow metal.
The United States, or CPI, rose 6.8% in the year through November, increasing at its fastest pace in four decades, just like in October, the Labor Department said on Friday.
âGold is slowly regaining momentum after a hot inflation report mostly matches estimates,â said Ed Moya of online trading platform OANDA. “Much of inflation is stiffer than anyone wants and that should keep the medium to long term outlook for gold bullish.”
But Moya also warned that an accelerated cycle of rate hikes is a big risk and could trigger gold sales panic, although there seems to be a good chance the Fed will do so now.
âGold just needs to survive a firm consensus on how many rate hikes the Fed will start with next year,â he said. “The recent gold trading range of $ 1,760 and $ 1,800 may continue to hold until next week’s FOMC decision.”
The pendulum of gold will of course be determined by the fluctuations of US Treasuries and the dollar.
The benchmark peaked at 1.53% for the week just ended from last week’s low of 1.34%, moving in step with an impending rate hike.
The surprising flattening after Friday’s consumer price reading is in line with expectations.
“I would say the CPI reading is in line with expectations, but the Forex market has positioned itself for a higher reading,” said Greg Anderson, global head of currency strategy at BMO Capital Markets, as quoted by Reuters .
Anderson said it was normal for forex players to reduce their positions towards the end of the year and the dollar’s decline on Friday was “probably a prelude to that”.
“The forex market has been extremely long in US dollars for several months, so with this number turning benign, we are almost running out of events that could cause the dollar to rise significantly before the end of the year.”
That leaves the Tuesday-Wednesday meeting of the Fed’s Federal Open Market Committee and Powell’s press conference afterward as the last dollar / gold catalyst of the year.
Powell is highly expected this time around to side with his central bank colleagues who want to hurry up the Fed’s ‘eternal’ stimulus package by possibly cutting $ 30 billion a year. months instead of the $ 15 billion previously listed, so it can be done in just over three months, and the first pandemic-era rate hike can take place by April.
The argument for this is not just a reading of the CPI at its highest level since 1982. It is also a labor market with the lowest number of jobless claims in 52 years and standing at just 0.2% of the Fed’s target for maximum employment in November. If these are not compelling reasons for monetary tightening, the question is what will happen.
On Powell’s side, his transformation from dove to hawk was almost complete when he told the Senate late last month that it was time to stop calling America’s soaring inflation transient. He also warned that “the threat of ever higher inflation has increased” due to the emergence of the Omicron variant, and that the surge in price pressures could last “until next year. “.
Despite this, the Fed chairman acknowledged that Omicron poses other “downside risks to jobs and economic activity.”
With such a complicated outlook, will the Fed push to double its tap?
Powell will tell us on Wednesday.
Technical outlook on gold
Sunil Kumar Dixit, a regular commodities techniques contributor to Investing.com, says gold needs to stay above $ 1,768 over the coming week to avoid plunging into the $ 1,700 or even below.
âA decisive break below $ 1,768 can push gold to 1758, which is the trigger for a correction to $ 1,745- $ 1,735 and $ 1,720,â said Dixit, who is a technical strategist in chef at skcharting.com.
Dixit noted that bullion spent the week in the $ 1,793- $ 1,770 band, as they sat inside the bearish candle of the previous week.
He said bullion ended the week with an “indecision” at $ 1,782.75, while the weekly stochastic reading of the Relative Strength Index, or RSI, remained bearish at 23/43.
âFurther moves will largely depend on the price break between the two trend keys – the 50% Fibonacci level of $ 1,797 and the 61.8% Fibonacci level of $ 1,768.
But gold could also surprise and rise, Dixit said.
âA volume-backed move above $ 1,797 may trigger a race to the next major step of $ 1,825,â he said.
Oil market activity and price rounding
Oil prices posted their first weekly gain after six in the red, analysts warning of greater volatility as the market tries to manage downward pressure from Omicron-related news and rate hike fears against a background of optimism about energy consumption in the next quarter.
, the benchmark for US crude, was up 73 cents, or 1%, to $ 71.67 a barrel. Over the week, WTI gained 8.1%. Last week, it hit a four-month low of $ 62.48 amid Omicron fears, following a seven-year high of $ 85.41 in mid-October.
The London market, the world’s oil benchmark, also gained 73 cents on the day like WTI, gaining nearly 1%, to settle at $ 75.15. For the week, Brent posted a gain of 7.7%. Last week it fell to $ 65.80, from a 2014 high of $ 86.70 in mid-October.
âOmicron is still a major risk factor,â said Phil Flynn, Chicago Price Futures Group analyst and a recognized oil bull, as crude prices posted a gain of around 7% on the week after rising. lost about 20% in the previous six weeks.
On a related note, Flynn pointed to a Bloomberg story that found passenger vehicle traffic levels on U.S. interstate highways returned to pre-Covid levels, with miles driven up 0.3% on a four-week moving average, the first positive rate since March 2020. âOmicron may or may not change the trend,â Flynn said, referring to a quote from this story.
Almost 80% of the roughly 40 cases of Omicron reported in the United States were among those fully vaccinated, with a third of them even receiving a booster dose, the US Centers for Disease Control and Prevention said on Thursday. United, further complicating efforts to counter the latest variant of Covid.
Global health experts, including America’s top virologist and White House adviser Dr Anthony Fauci, say Omicron’s effects appeared less severe than initially thought. Pfizer (NYSE 🙂 and its partner BioNTech (NASDAQ 🙂 also said that three doses of their vaccine could neutralize the variant.
But Thursday’s news also showed Omicron to be 4.2 times more transmissible than the Delta variant of Covid, leading to a resurgence in hospitalizations and deaths around the world. What is not known is the death rate of the new strain, although its rate of spread was enough to stir up fear.
WTI Technical Perspectives
Dixit notes that after six weeks of free fall, WTI had taken support at $ 62.40, a level that has acted as a hard floor since March 2021 on several price swings.
The 29/21 US Crude RSI’s weekly stochastic reading of 29/21 with a bullish cross suggests a continuation of the upside, while a sustained move above the weekly average Bollinger Band of $ 73.90 may favor a new price recovery, he said.
âThis also coincides with the 50% -Fibonacci retracement measured from the high of $ 85.40 to the low of $ 62.40,â Dixit said.
“Volume-focused buying above this zone may further extend the payback to $ 76.60 and $ 80.”
On the flip side, not going above $ 73.90 could push WTI to its exponential 50-week moving average of $ 67.30 and retest the low of $ 62.40, he warned.
Warning: Barani Krishnan does not hold a position in the commodities and securities he writes about.