Cautious traders focused largely on Federal Reserve Chairman Jerome Powell’s speech for clues on the US central bank’s rate hike trajectory. In the midst of this wait, the gold price is calm on Tuesday. Analysts interpret the market and share their forecasts.
“This could turn into an upward move for the gold price”
Spot gold held its position at $1,872.79 at the time of writing. US gold futures were flat at $1,877.70. Investors’ focus is Jerome Powell’s speech at the central bank conference later in the day. Market participants will also scan the US consumer price index (CPI) data, due Thursday, for more clues on the Fed’s policy stance. Yeap Jun Rong, IG Market strategist, comments:
Gold price is hitting a key resistance at $1,875. Later today, a hawkish tone in Fed Chairman Powell’s speech may lead to profit taking in the short term. However, the market expects a downside surprise to support the expectations for a less hawkish rate hike in the US CPI. This could turn into an upward movement for the gold price.
“Gold can continue to be positive!”
Rising interest rates blunt gold’s appeal as an inflation hedge. It also raises the opportunity cost of holding a non-returning asset. San Francisco Federal Reserve Chairman Mary Daly said on Monday that the upcoming Fed meeting is likely to raise rates by 50 basis points, or 25 basis points. Atlanta Fed President Raphael Bostic commented that while rates are likely to remain higher through 2024, it is appropriate to be “more cautious” when setting rates.
The World Gold Council (WGC) notes that the market consensus of a moderate recession appears to be coming to an end. But gold could remain positive with a more serious downturn, according to the WGC.
Meanwhile, a WGC report released on Monday revealed that it is seeing $3 billion outflows in 2022 from physically backed global gold exchange-traded funds. This showed that assets were equivalent to a 110 metric ton drop. This translates to a 3% year-over-year decline. The report said gold saw demand surge in the first four months of last year “as geopolitical risk came to the fore” and then steadily returned those gains as “aggressive rate hikes dominated the narrative.”
“Gold absolutely shines!”
Precious metals gained support Monday from a weaker dollar, which helped gold rise to 8-month highs. Kitco senior analyst Jim Wyckoff says that solidly rising crude oil prices and the decline in the US dollar index (DXY) are working in favor of the precious metals market bulls as the week begins.
According to FXTM market analysis manager Lukman Otunuga, gold is definitely shining. The analyst says it has gained more than 2.8% since the start of 2023 thanks to a softer dollar, lower Treasury yields and less hawkish expectations.
The upside momentum was supported by the mixed US jobs report released last Friday, fueling speculation that the Fed will slow rate hikes. Given how key drivers have swung in the bulls’ favor, further upside is possible with the pending US inflation report serving as a potential catalyst.
As Cryptokoin.com reported, December consumer price index data will be released on Thursday. “This will mark six consecutive months of decline,” Otunuga said if U.S. inflation cools further in December. “It would be a welcome development for zero-yield gold,” he says. On a technical basis, he adds, “The bulls remain in a strong position with the next key level located at $1,900.”
Gold price technical analysis
Technical analyst Christopher Lewis describes what he saw in the technical drawing of gold as follows. Gold markets rallied in Monday’s trading session as we continue to see a lot of bullish pressure in this market. At this point, the market seems to be trying to reach the $1,900 level. But we gave a little back on the way to gain. At this point, we’ll probably be looking for some sort of pullback to find value. After all, the trend is firmly entrenched. Also, of course, we see a lot of traders who want to protect the wealth. Remember, while the US dollar is declining, the reality is that the negative correlation between the US dollar and gold has deteriorated somewhat. So I wouldn’t worry too much about currency markets at this point.
On the dips, I suspect the $1,850 level will be an area where we will see a lot of buyers return to this market. If we break down there, assuming we can go that low, we have the $1,800 level. This is a very good looking graphic and I suspect a lot of people want to get involved. So I don’t expect the drops to be huge. In fact, it seems like everyone is getting into this market as fast as they can. So I suspect we are facing a situation where it would be difficult to get good pricing. I believe we can look at the $2,000 level sooner or later. But this will obviously take quite some time. Buying on the dips will continue to be the way forward.