Markets are worried that the Federal Reserve needs to be more aggressive to keep inflation down to 2%. That’s why gold prices fell for the fourth week in a row.
“The problem with gold is that the US dollar is climbing”
cryptocoin.com As you follow, markets have been hit this week by stronger-than-expected economic data and stubborn inflation figures. In contrast, gold continues to struggle. Bart Melek, Head of Global Commodity Strategy at TD Securities, comments:
Inflation will be stickier than expected. And we have confirmed that the economic data is conclusive. The next Fed move could be 50 basis points. And the central bank may not stop there. Also, that means higher interest rates for longer periods of time. The problem with gold is that the US dollar is climbing. The hypothesis that the US dollar will weaken in a hurry is being questioned.
Two drivers to watch
Edward Moya, senior market analyst at Oanda, says there are two drivers that long gamers should keep an eye on. First, new expectations for additional Fed tightening. “The Fed will remain aggressive in tightening,” Moya said. 50 basis points surprised many traders. “Even though a half-point rate hike will not occur, the Fed will raise rates in March, May and possibly June,” he said. CME Fedwatch Tool, on the other hand, currently sees a 50 bps increase in March.
According to Moya, the second thing to watch is recession risks, which will start to escalate as the Fed continues to raise rates. “It looks like we are doomed to recession. This is an economy that will need a recession to keep inflation down. And the markets will start believing it. Also, all the recession talk is good for gold prices,” he said.
Levels to watch for gold prices
Analysts remain largely neutral on gold in the short term as they see it as likely to hold the $1,800 level. Edward Moya: “I don’t think $1,800 will break. That’s a huge level of support,” he says.
Next week, analysts will look at FOMC minutes from the February meeting, PMI data, the Fed’s preferred measure of inflation, the core PCE, and more Fed speakers. In the longer term, Bart Melek is optimistic that the precious metal could hit $2,000 towards the end of the year or early 2024. In this regard, Melek makes the following statement:
The market will react to the actual pivot that has occurred. The question is whether it will be after 2023 or at the beginning of 2024. As the economy slows, the Fed will decide that slowing economic activity will do more harm than slowing inflation to 2%.
Weekly gold prices technical analysis
Technical analyst Christopher Lewis describes what he saw in the technical drawing of gold as follows. Gold markets initially fell throughout the day on Friday to show signs of weakness. At this point, the lower 50-Day EMA is showing support signs. The $1,809 level is where the 50-Week EMA is located and is showing signs that there may be buyers there. On the other hand, if we turn and remove the top of the candlestick, we may find more buyers there as well. Gold has crashed over the past few weeks. However, it seems that traders are trying to step back on Friday to support this market. This makes some sense, because basically nothing has changed, and of course people use gold as some security operation.
If we break below the 50-Week EMA, the market will likely move much lower, perhaps reaching the 200-Week EMA near the $1,714 level. However, I think this is a market that I think continues to fluctuate back and forth too much to show signs of volatility. But given enough time, I think the market will eventually try to bounce back higher. This will be especially true if we break past the $1,900 level, an area where we saw many upside hammers forming on the daily timeframe.
Regardless, be very careful with the US dollar. Because sometimes there can be a very large negative correlation between 2 markets. That doesn’t necessarily mean it has to happen, just that it’s possible. Also, a lot of it will come down to interest rates, so be careful with them as well.
Data to watch next week
- Tuesday:US existing home sales, manufacturing PMI
- Wednesday:FOMC February Meeting Minutes, FOMC member Williams Speaks
- Thursday:US GDP Q4, US jobless claims
- Friday:US PCE Price Index, US New Home Sales
