- Gold is being held up by critical support on the daily chart.
- The week ahead and key events could move the needle as bulls ad bears battle it out
The price of gold, XAU/USD, ended the week on the front foot and was correcting from the lows of last week’s bearish run from $1,780, moving in on the prior day’s support near $1,800. Trading around Friday’s close near $1,791, the yellow metal is on thin ice, technically, as it balances upon critical daily trendline support for the open.
Risk appetite improved on Friday. World stocks rallied with corporate earnings taking up the spotlight which was a positive focus and welcoming distraction from the geopolitical turmoil and Federal Reserve tightening concerns. Economic data also helped to ease inflation worries, which left the US dollar in consolidation and US yields on the backfoot.
US Treasury yields fell across the curve on Friday as the Fed’s favoured inflation gauge, the core personal consumption expenditure price index (PCE), stayed within expectations. In the 12 months through December, the PCE increased 5.8%. That was the largest advance since 1982 and followed a 5.7% year-on-year increase in November. Nevertheless, the 2-year and the 10-year yield curve steepened to as much as 65.10 basis points after hitting its narrowest spread since November 2020 on Thursday.
The outcome was significant because the Federal Reserve on Wednesday indicated it is likely to raise rates in March when it also reaffirmed plans to end its pandemic-era bond purchases at the same time. This would clear the way for launching a significant reduction in its asset holdings which has the markets on edge, which had been weighing on stocks and supporting the US dollar.
”The Fed’s hawkish tone is sapping risk appetite from the market, but safe-haven flows also remain subdued despite rising risks of a conflict in Ukraine, leaving investors with few avenues toward refuge,” analysts at TD Securities explained. ”We expect that the precious metals complex will struggle to attract capital in this context.” This is said after gold recorded its biggest weekly loss since August.
The week ahead
Meanwhile, the week ahead could be a critical one for gold considering the lineup of US events that include the US Nonfarm Payrolls jobs data and US ISM numbers.
”More regional surveys for January will be released early next week, so expectations could change, but the surveys already released point to declines in both ISM indexes,” analysts at TD Securities said, ”Weakening can likely be explained in large part by temporary fallout from Omicron, but a fading of the boost from fiscal stimulus is probably causing some slowing as well.”
With regards to the jobs data, the analysts explained, ”the recovery in employment was probably temporarily interrupted by the Omicron-led surge in COVID cases. Many of the employees who had to isolate likely continued to be paid, and thus remained on payrolls, but many were likely not paid. The report will probably show continued strength in wage gains. The report will include the annual revision to the data.”
Gold technical analysis
Analysts at ANZ Bank argued that gold looks vulnerable for further losses, having broken below its key moving averages to trade below $1,800/oz.
With that being said, the price could be on the verge of a significant upside correction for the sessions ahead considering the price has run into a wall of support as illustrated above near $1,780. The 21 and 50-day EMAs coincide with a 38.2% ratio and a 50% mean reversion thereafter which could draw in the price towards $1,810/820.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Please Note: Goldtrends.net post this article as a means of providing the latest news relating to gold investment. The posting of this article does not necessarily relate to our views, and should not be seen as advice or guidance. Always consult a financial advisor before making any investment choices.