Gold prices hit almost $1,780 this week. However, amid the hawkish comments from Federal Reserve officials, he’s starting to backtrack. And analysts say a drop below $1,750 will likely end the rally. He also warns that it could open the door to a harder pullback. One technical analyst notes that gold is spinning to form a shooting star.
“Gold is not ready to fall yet”
The size of the rally underneath has taken many by surprise over the past two weeks. But the precious metal may have moved too high, too fast, according to Frank Cholly, senior market strategist at RJO Futures. Gold rose to around $1,780 this week from $1,631 in early November. However, the rally seems to have lost its strength, at least for now. The strategist explains:
Gold is close to $1,800. And now the market is taking some profit. It seems to be rolling. Not ready for fall yet. It’s just breathing a little.
It’s always a good idea to keep an eye on the US dollar. But Cholly says he’ll pay more attention to how gold yields on U.S. Treasury bonds trade next week. The strategist states that if gold closes below $1,750, it will enter a bearish trend. Also, at $1,725, it means “things are going bad for gold,” according to Cholly.
Fed officials take a step back against market expectations
cryptocoin.com As you follow, a group of Fed officials opposed the idea of an early pivot because of the cooler inflation data in the October report. The Fed reinforces the idea that they will remain hawks. We will probably see a 50 bps increase instead of 75 bps in December. However, the bond market tells us a slightly different story. Gold is really going to keep an eye on these interest rates. According to Cholly, if interest rates start to fall, gold will recover. Moreover, it will challenge $1,800 again and approach $1,820.
Some of the comments markets have had to digest this week included Fed Vice Chairman Lael Brainard’s statement that the Fed has “done a lot” but still has “additional work to do.” “A report does not set a trend,” said Fed chair Christopher Waller, citing the October CPI. Louis Fed President James Bullard warned that the Fed still needs to raise interest rates to at least 5.25%.
The Fed is also likely to step back, according to Capital Economics
The Fed, however, is known for rapidly changing its stance. In addition, Capital Economics predicts that inflation will continue to decline. Paul Ashworth, chief economist for North America at Capital Economics, comments on the Fed’s stance:
We still believe that October’s CPI will be followed by better inflation news in the coming months. This means that the federal funds rate will fall from 4.50% to 4.75% early next year. At the end of the last tightening cycle in December 2018, officials still estimated that rates should be increased by another 75 bps. And 12 months ago, the Fed only predicted 100 bps tightening this year.
“It is possible that the price of gold will fall further”
Next week will be a shortened vacation week. US Thanksgiving falls on a Thursday. Fed minutes from the October meeting and more Fed speakers will also be on the agenda. OANDA senior market analyst Edward Moya says risk aversion will likely settle down and gold could drop further. In this context, the analyst makes the following statement:
We were very close to convincing most of Wall Street that a soft landing had occurred. However, the likely scenario is that the recent recovery in risk appetite will eventually end up like a bear market rally. Inflation will prove difficult for the Fed to declare victory next spring. That means the Fed must mitigate risks that it will have to tighten after February.
The Fed still faces a strong labor market. And this weekend, markets will examine Black Friday sales data to see how bad the demand destruction is. However, Moya does not ignore that the US consumer is in good standing. Also, the analyst does not expect gold to maintain $1,750 next week.
“The price action of gold depends on how inflation behaves”
TD Securities also describes the gold rally as a short-term move. Daniel Ghali, commodity strategist at TD Securities, shares his predictions:
The risk of taking a position continues to be on the upside. A break above $1,850 is possible to catalyze additional gains. But if that happens, positions will be negatively skewed. In the long run, gold’s price action depends on how inflation behaves. If inflation falls, it opens the door for the Fed to turn around.
Weekly gold technical analysis
Technical analyst Christopher Lewis explains what he saw in the drawing of gold as follows. Gold markets rallied a little after the huge green candlestick last week to show signs of strength once again in the trading week. However, we have also seen the market give up its gains to form a shooting star. There has been a huge upward movement last week. But there was little in the way of follow-up. That’s very interesting. Remember, most of these were based on CPI figures as the US dollar appreciated last week. Since then we have done almost nothing.
So the question at this point is whether this is a false break. Or whether it’s the beginning of something bigger. If we break below the $1,750 level, it is possible that we could see this market drop to the 200-Week EMA and approach the $1,700 level. I would expect to see some backlash in this area. Therefore, volatility is likely.
On the other hand, if we reverse a break above the $1,800 level, then we have a possibility to go much higher. Maybe to the $1,880 level. In fact, it is possible that we will probably reach the $ 2,000 level in the long run. Ultimately, this is a market that I think continues to see a lot of noisy behavior. However, it’s also at a crucial inflection point that not many people know about. However, I pay a lot of attention to interest rates because of the large negative correlation. I will also pay attention to the US dollar.
