- After a less threatening CPI for November and Powell’s dovish remarks, $1,900 gold appears to be within striking distance
- Huge acceptance of the $1,842-$1,845 level might pave the way for the next up-leg toward $1,896
- Massive support has formed at $1,788.
In case the Federal Reserve performs to script and wields the 50 basis point rate wand, the gold bulls might find themselves within the striking range of the $1,900 level.
Longs in the yellow precious metal have had it relatively good because futures on New York’s COMEX started rebounding from 30-month lows of $1,618 per ounce hit in September. In the 12 weeks that followed, there have been just three in the red, and the price of gold itself has managed to recover some $200 or 12%.
With December 13’s release of the Consumer Price Index (CPI) report for November showing lower-than-expected inflation, gold might be planning till the next major US economic data – the December jobs report scheduled for release on January 6.
Between Wednesday’s interest rate decision by the Fed’s Federal Open Market Committee (FOMC) and the release of December’s non-farm payrolls report, there are 23 days which translates into three weeks.
One analyst at online trading platform OANDA, Ed Moya, stated:
“Gold is now comfortably above the $1,800 level ahead of the FOMC decision. The peak for the Fed’s policy rate dropped after the inflation report, and that should keep gold supported here.”
Ahead of today’s open in New York, benchmark COMEX gold for February delivery was at $1,820 per ounce in Asia’s late afternoon trading. It has gained 2% in the previous day’s trade, reaching $1,836.80 — the highest for COMEX gold since June 27, or a near 6-month high.
The price of spot gold, which is more closely followed than futures by some traders, was at about $1,809 after rallying by nearly $31 in yesterday’s trade. The session peak was $1,824.87.
Gold prices spiked after the CPI report highlighted that consumer prices expanded by around 7.1% in the year to November compared to annual growth of 7.7% in October. The Labor Department said in a statement:
“This was the smallest 12-month increase since the period ending December 2021.”
The CPI reached a 40-year high in June when it grew at a yearly rate of 9.1%. Since that surge, it has slowed every month, giving back a whole 2% in the last five months. While referring to the 0.5% annual drop for October, economist Adam Button said in a post published on the ForexLive forum:
“The previous report surprised to the downside. This isn’t quite as big of a surprise, but it’s in the same direction in prodding the Fed to slow down on its rate hikes.”
The Fed’s target for inflation is just 2% annually. In a bid to control surging prices, the central bank has added 375 basis points to rates since March through six rate hikes. Before that, interest rates peaked at only 25 basis points, as the Fed cut them to almost zero after the global COVID-19 outbreak in 2021.
The Fed, which executed four back-to-back jumbo rate hikes of 75 basis points from June to November, is now contemplating a 50 basis point increase at its December 14 rate decision.
More important than that is what the next rate hike for February 2023 will look like: Early indications by the money markets suggested a 25 basis point hike. If that is the case, it will match the March increase that started the Fed’s series of rate hikes for 2022.
These expectations may further weaken the dollar, which has already lost nearly 8% in the past three months. Notably, the Dollar Index and US Treasuries benchmarked to the 10-year note are normally contrarian trades to gold. When the two decline on concerns related to economic growth or disinflation, gold seems to rise as a haven asset.
Some longs in gold are also expecting a return to $1,900 and above if Jerome Powell, Fed Chairman, sounds somehow dovish at his news conference after Wednesday’s rate decision.
Longer-term expectations among the gold bulls are of a sweet spot target of $1,950 – which is $130 higher than the current levels – to get achieved by the time the Fed holds its February 1 FOMC meeting on rates. COMEX gold last traded at $1,900 levels in May after peaking at almost $2,080 in March.
Technical charts for spot gold now point at a possible high of only below $1,900, although momentum could carry it over in the long term, according to a chief technical strategist at SKCharting.com, Sunil Kumar Dixit.
“Following the price action in the previous occasion, a pullback towards $1,798-$1,792 may be seen as a buying opportunity as gold may retest $1,824 and extend the rally towards the next leg higher of $1842, which is 50% Fibonacci level.”
Dixit stated that strong acceptance of the $1,842-$1,845 level might pave the way for the next up-leg toward $1,896, which is the 61.8% Fibonacci level.
“For day traders, a sustained move above $1,812 may be seen as a buyer’s market, while below $1,808 may be seen as a seller’s market.”
Dixit added that spot gold’s daily and weekly stochastics, and the Relative Strength Index, continue to offer support for bulls, although $1,842 called for caution.
“The $1,788 level, which is a 200-day SMA and also 38.2% Fibonacci level, holds the key to the current uptrend, failing which a drop to $1,750 and $1,722 is possible. At $1,788, spot gold will see significant support.”
