Gold prices found support from ‘flight to safety’ as Omicron cases rose on Wednesday and benchmark US stock indices and dollar weakened. However, after the Federal Open Market Committee (FOMC) minutes of the December meeting were released, prices began to retreat. At the time of writing, gold recovered after seeing below the psychological level of $ 1,800 and is trading at $ 1,805.
Is the gold entering the bear market?
Cryptocoin. com, FOMC minutes showed that they thought that interest rate hikes could come faster than the authorities had previously expected. Gold Newsletter editor Brien Lundin comments:
The Fed minutes were hawkish, showing greater concerns that inflation will persist, and pointing to an accelerated schedule for rate hikes overall. Therefore, they were bearish for gold, as confirmed by the sudden market reaction in the gold price.
Lukman Otunuga, head of market analysis at FXTM, comments, “Investors seem to be turning to gold as rising Omicron cases accelerate the escape to safety.”
However, according to Brien Lundin, any indication that the first rate hike will come sooner is actually bullish for gold, as gold often rises with the Fed’s rate hikes. Brien Lundin gives the following example for this situation:
The Fed’s first rate hike in December 2015 ended the long bear market for gold, and the yellow metal rallied strongly for months afterwards.
“FOMC minutes may cause gold to fall if interpreted as hawk”
Lukman Otunuga reminds that how gold will complete the first trading week of 2022 will be affected not only by the FOMC meeting minutes, but also by Friday’s key US business data.
If investors interpret these reports in a way that reinforces expectations that the Fed will raise interest rates three times this year, it could cause zero-yield gold to slide.
The official US jobs report will be released on Friday, and economists expect a total of 422,000 jobs have been added to the economy. Metals markets, meanwhile, showed little reaction after ADP reported Wednesday that private sector payrolls rose 807,000 in December, more than double the 375,000 expected by economists. Colin Cieszynski, chief market strategist at SIA Wealth Management, comments on the developments as follows:
All current economic news is watched through the eyes of investors, who are speculating on how quickly the Fed might start raising interest rates after its asset-buying program ends in March.
Pablo Piovano: Gold remains focused on $1,800
Open interest on gold futures markets soared with more than 10,000 contracts on Wednesday, taking into account flash data from CME Group, reversing two consecutive daily reversals on Wednesday. Along the same lines, volume extended its uptrend for the third consecutive session.
Market analyst Pablo Piovano reminds that gold prices are falling further and approaching the key $1,800 region, noting that the negative price action comes after increased open interest and volume. Pablo Piovano provides the following analysis:
This indicates that extra losses remain in the pipeline in the very near term. Against this, the key $1,800 level still emerges as a huge magnet for occasional bearish attempts.