Inflation has started to slow and the crypto market is going through another meltdown phase. In this environment, gold is quickly becoming the asset to watch. Gold prices rose more than $80. This is her best weekly performance since July 2020. However, analysts are yet to make any new bull market forecasts.
Gold had one of its best weeks
Spot gold price started the week at $1,681 and was last traded at $1,770. This is the best performance since the week ended July 24, 2020, when gold accumulated more than $90 and hit a new record of over $2,000 that year. The strong comeback came after the latest US inflation data showed price pressures to slow. The biggest takeaway for markets is the possibility of a more flexible Fed in the coming months. The news lowered the US dollar and gave gold an opportunity to rally. Commerzbank analyst Carsten Fritsch comments:
US CPI rose much less than expected in October. This, in turn, put pressure on the US dollar, reducing the Fed’s rate hike expectations. It also caused US bond yields to drop markedly. As a result, the gold price climbed to $1,760, reaching its highest level since late August.
“For technical traders, this chart is still very strong”
Analysts are expecting a rebound in gold after seven consecutive months of losses. This is the longest losing streak in more than fifty years. And gold has finally made its way to the confluence of election headlines, with hopes that the Fed will slow things down and China will reopen. Frank Cholly, senior market strategist at RJO Futures, comments:
We made a debut on Thursday with a very positive closing. We’re getting some follow-ups on Friday. For technical traders, this chart is still very strong. I have no reason to say that he will return. It is possible to find levels close to $1,775-1,800 before the market stalls.
Does the crypto crash benefit gold?
cryptocoin.com The rally also coincided with another big sell-off in the crypto space, where Sam Bankman-Fried’s cryptocurrency exchange FTX filed for Chapter 11 bankruptcy on Friday. The crash has a high risk of contagion that will impact crypto and the broader market in general. Crypto volatility has a much wider reach this time around. Hence, gold is reaping more benefits from the first months of this crypto winter. Everett Millman, precious metals specialist at Gainesville Coins, says:
Compared to the summer months, the situation in crypto has changed. Investors are more worried than they were earlier this year. The accumulation of capital in the crypto market is quite large. And gold has a traditional role. After all, it is considered a reliable and traditional safe haven.
Is it possible for gold to break $1,800?
Despite significant gains already recorded in gold, analysts see room for the precious metal to rise further. Frank Cholly highlights $1,830 as a technically possible level next week. In this context, the analyst makes the following statement:
There is still momentum here. We could see the market return to $1,830 before gold enters heavier resistance. That’s possible as long as the Fed doesn’t come out and try to calm things down a bit.
Too early for Fed pivot, analysts say
For the yellow metal, it all comes down to how fast the Fed axis happens. But analysts say it’s too early for the Fed to step back. Therefore, they note that the precious metal should be a little more patient before seeing a new bull market sentiment. Everett Millman explains his views as follows:
Based on the Fed signaling a more dovish tone and the crypto market crash, I’m not convinced gold will rise to $1,900. It will likely return some of these gains. However, we can see the momentum continue as long as it holds above $1,700.
Frank Cholly adds that this is not the time for the Fed to change direction, noting that Fed Chairman Jerome Powell told reporters that it was premature to change policy and that rates could be higher than expected. In this regard, he records:
Inflation is slowing. So the Fed is seeing its intended results. And maybe it would make sense to slow down a bit. However, the Fed would rather go to extremes than stop raising interest rates too soon. I wouldn’t be surprised if I get some kind of Fed comment soon.
How will gold react?
Frank Cholly expects to see softer language from the Fed only early next year. He also notes that it would be premature to talk about a pause. He states that he cannot contradict what Powell said two weeks ago. In this regard, he makes the following statement:
Therefore, I do not expect gold to go to $1,900 or $1,950. Next week’s gold price action will mainly be driven by the US dollar, which is the most dominant driving force for gold’s ability to continue the rally.
Everett Millman shares the following predictions regarding the direction of gold:
The dollar is the most important thing I watch. Because we saw a huge movement. Is this trend continuing? Will the dollar fall or wait? This will play a big part in whether gold can sustain its gains. Longer term, gold is looking to regain control above $1,700 and outperform most commodities next year.
Weekly gold prices technical analysis
Technical analyst Christopher Lewis illustrates the technical outlook for gold as follows. Gold markets rose quite significantly during the week to reach the 50-Week EMA. Also, it is important to note that on the daily chart, it is at the 200-Day EMA. This will of course have a lot of impact. As a result, if it rises above this area, a look at the $1,800 level is likely.
On the other hand, if it bounces back below the $1,750 level, it could be in the middle of a steeper correction. Gold is in really good shape right now. But even though we’ve seen such a huge uptrend, the reality is that we should be concerned about the fact that we’re lending so much support. All things being equal, gold is currently slightly more positive than negative. If it rises above the $1,800 level, it is possible to see a lot of upside momentum entering the situation.
However, I think we will continue to see a lot of volatility. Therefore, we can only read this much of the candlestick. Also, a lot of it relies on the Fed, which is probably spinning around on its axis, which won’t happen anytime soon. The 7.7% inflation in the US is nowhere near tame enough to keep the Fed from staying. So it’s more likely that this is the case than that there isn’t a situation in which we eventually retreat. However, it is difficult to predict what the Fed will do in the market. Because, frankly, the market continues to fly against it.
