Or is there too much momentum?
It’s been a wild ride for gold these past few weeks and the latest moves highlight just how much uncertainty there is in the markets right now. The yellow metal saw incredible support earlier this month as inflation indicators flashed and central banks pushed back against accelerating their policy response.
The transitory claim was starting to fall on deaf ears and that worked out well for gold, a traditional inflation hedge. Low real yields continued to be supportive for gold prices as long as policymakers remained dovish and the data remained good but not great.
With the data improving, gold started to run out of steam and the retail sales data showed the consumer is thriving. Brainard missing out on being the next Chair appears to have been the straw that broke the camels back and the dollar soared, dragging gold lower.
So what next? As I’ve mentioned, these markets are a bit crazy at the moment and I’m not expecting that to change. But as far as the near-term is concerned, the key test for gold now is $1,800.
Aside from being the next big round number—which often has a psychological impact—it’s also the 61.8 retracement of the November lows to highs and falls around the 200/233-period SMA band on the 4-hour chart.
Needless to say, a break below here could be painful with $1,760 the big test below. A rotation higher could suggest there’s more to come for the gold rally. The challenge is momentum which hasn’t eased on approach to $1,800. Gold’s resolve may soon be tested.