Gold Market Analysis: If it falls below $1,865, it will challenge the psychological level of $1,850
On Tuesday (January 10), in the European market, spot gold continued to rise slightly by 0.28%, closing at a high level of $1876.60. Expectations that the Fed will shift interest rates continue to be an influencing factor supporting gold’s rise.
On Tuesday, Powell spoke at the Riksbank’s “International Symposium on Central Bank Independence” in Stockholm. Originally, the market expected to dig out some useful information about the direction of the Fed’s monetary policy from his speech. However, judging from the content of his speech, he did not provide too much hype 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 measures may be taken in the short term, but the Fed needs to resist expanding the scope of policy to solve other important social problems. Under such circumstances, it is not suitable to use relevant tools to promote the development of a green economy. In this speech, there was no further elaboration on the economic outlook and monetary policy. Powell’s overall speech was neutral and did not have much impact on the gold market. Next, the U.S. Consumer Price Index (CPI) for December this Thursday will be an event that the market will focus on. U.S. inflation fell to 7.1% in November, the fifth straight month of deceleration and the lowest level since December 2021. Continuing signs of easing inflationary pressures in the world’s largest economy in the United States lifted market sentiment somewhat and stoked speculation that the Federal Reserve would be less hawkish. According to Bloomberg News, the annual rate of inflation in the United States in December last year is expected to further fall to 6.5%. If expectations materialize, it would mark the sixth straight month of decline and hit the lowest level since October 2021. Given that markets are sensitive to anything related to inflation, this could lead to “explosive” volatility across financial markets. More signs of falling inflation could fuel talk that the Fed will shift to smaller 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 stabilizing. This scenario could lead to weaker gold prices as the dollar rebounds along with U.S. Treasury yields.
On a technical level, gold prices are waiting for a new catalyst to break through 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 overbought territory, indicating that gold prices still have more room to rise. The upward sloping 50-day moving average has crossed 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 strengthen the short-term bullish bias for gold prices. On the other hand, gold sellers may fight back at the $1880/oz level, prompting 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 US$1,850/oz. Once this level is lost, the possibility of gold price selling and falling to the 21-day moving average of US$1,819/oz cannot be ruled out.
Wang Gang, Guangdong Branch, Bank of China
Opinions are personal and do not represent those of the organization