Gold prices closed a volatile week in positive territory. The US dollar lost its real strength over the weekend despite the Fed’s hawkish stance. Market analyst Eren Şengezer says that gold could prolong its recovery if it confirms $1,675 as reinforcements.
Although gold prices started the week badly, strength rose on Tuesday
The negative change in the risk mood at the beginning of the week helped the dollar to defend its resistance against its rivals. Thus, it caused the gold price to continue its downward movement. Disappointing PMI data from China showed that business activity contracted in October. This led to investors taking shelter under it.
On Tuesday, the Reserve Bank of Australia increased the policy rate by only 25 basis points. U.S. Treasury bond yields subsequently fell. In this environment, gold prices reversed their side. In the second half of the day, data from the USA revealed that JOLTS Open Jobs increased to 10.7 million compared to the market expectation of 10 million on the last working day of September. This helped the dollar find its place. Additionally, the ISM Manufacturing PMI came in at 50.2 in October, surpassing analysts’ claims by 50. Gold price struggled to maintain its bullish momentum with optimistic US information during US trading hours. However, gold gained about 1% on Tuesday.
The monthly report released Wednesday by Automated Information Processing (ADP) revealed that employment in the US private branch rose by 239,000 in October. This information surpassed the market forecast of 193,000. However, it failed to provide a foothold for the US dollar as investors stayed on the sidelines ahead of the Fed’s highly anticipated policy announcements. In the midst of this, gold prices managed to extend Tuesday’s gains and climb to $1,660.
Fed’s rate decision and Powell’s speech created volatility
Koindeks.com As you follow, the Fed increased the policy rate by 75 bps after the November meeting. In its policy statement, the Fed said it would take into account “cumulative tightening, policy delays and economic and financial developments” when determining the pace of rate hikes. This comment triggered a risk rally as it signaled a smaller 50bps rate hike in December.
But FOMC Leader Jerome Powell said in December’s Summary of Economic Forecasts (SEP) that he expects the terminal interest rate to be revised higher on the dot chart. He thus reiterated the Fed’s hawkish stance. Powell explained that it is more valuable for them to reach the upper limit of the policy interest rate more than the size or speed of the rate hikes. By contrast, US Treasury bond yields gained traction. Gold prices made a sharp U-turn and closed the day in negative territory below $1,640. Gold fell to its lowest level since September on Thursday, as the Fed’s positive impact on the dollar
Gold prices closed the week with strong rise
The favorable market mood of renewed optimism about China’s easing of coronavirus restrictions has given gold a boost. In this direction, it opened the door to a decisive recovery. The US Dollar struggled to find demand as a safe haven. It also helped gold rise to $1,650 ahead of the October jobs report.
The U.S. Office of Labor Statistics reported Friday that Nonfarm Payrolls rose 261,000 in October, beating the market expectation of 200,000 by a wide margin. However, annual price inflation, measured by Average Hourly Interest, declined from 5% to 4.7%. Wall Street’s main indexes rose steadily after this report. Thus, gold rallied strongly to end the week on a solid footing above $1,660.
There is the US middle election on Tuesday, what will be the effect of the result?
No high-impact macroeconomic information releases in the first half of the week. Therefore, market participants will pay close attention to developments surrounding China’s zero covid policy. According to the analyst, if China decides to soften its stance on the reopening and confirm the market rumors, gold is expected to strengthen with the improving demand outlook.
On Tuesday, there are the US midterm elections. However, the analyst says it is difficult to say what effect the result might have on the performance of the US dollar against its competitors or the overall market mood.
The event of the week will be US CPI data
The US Office of Labor Statistics will release Consumer Price Index (CPI) data on Thursday. Annual Core CPI is expected to rise to 6.9% in October from 6.6% in September. The analyst makes the following assessment:
Strong inflation data will remind investors of the Fed’s willingness to stay on an aggressive tightening path. This will cause gold to come under bearish pressure again. On the other hand, softer-than-anticipated information allowing markets to withdraw bets on December rate hikes of 75 bps. It is possible that this will provide a basis for gold in the short term.
Markets are still pricing a 50bps increase in 48% probability at the last FOMC policy meeting of the year, according to the CME Group FedWatch Tool.
On Friday, the United States economic report will feature the University of Michigan’s Consumer Sensitivity Survey for November. Markets will pay attention to 5-year Consumer Inflation Expectations instead of the Consumer Confidence Index heading. In October, the long-term inflation component rose to 2.9% from 2.7% in September. According to the analyst, it is possible that a data of 3% or more will cause an easy market reaction on gold. However, the opposite of this is also valid.
Gold prices technical outlook and gold sentiment survey
Market analyst Eren Şengezer makes the following analysis regarding the technical outlook of gold. The Relative Strength Index (RSI) indicator on the daily chart has crossed above 50. In addition, gold prices closed above the 20-day Easy Moving Average (SMA) for the first time in two weeks on Friday. Therefore, the technical outlook pointed to a bullish shift in the near term.
On the upside, $1,675 (static level, 50-day SMA) stands as a precious pivot level. If buyers confirm this level as a foothold, false additional profits of $1,700 and $1,720 are possible. On the downside, the 20-day SMA forms the first foothold at $1,650 before $1,620 (end of downtrend) and $1,600 (psychological level).
Despite Friday’s decisive recovery, experts are not convinced that gold will continue to rise in the near term. Average intents in the one-week and one-month views are at $1,639 and $1,653, respectively.