Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Gold Bulls Go Back To The Drawing Board After Blow Dealt By The Fed

By Investing.com (Barani Krishnan/Investing.com)CommoditiesJan 28, 2022 03:30AM ET
www.investing.com/analysis/gold-bulls-go-back-to-the-drawing-board-after-blow-dealt-by-the-fed-200616269
Gold Bulls Go Back To The Drawing Board After Blow Dealt By The Fed
By Investing.com (Barani Krishnan/Investing.com)   |  Jan 28, 2022 03:30AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

What difference a week in ​​gold makes. Just last Friday, I remarked about gold’s sheer resilience in being able to hold to the key $1,800 an ounce level, despite the combined onslaught of rallying US Treasury yields and the dollar

Now, as I write this, the front-month gold contract on New York’s COMEX, is trying to work its way back to that $1,800 perch after spectacularly falling from it over the past two sessions.

Gold Daily
Gold Daily

Charts courtesy of skcharting.com

The back-to-back drop between Wednesday and Thursday—after the Federal Reserve unveiled a new hawkish era for US monetary policy that’s conceivably bearish for gold—wiped out almost $60, or 3%, from the COMEX front-month.

It undid two weeks of work by gold longs, who built one of the most intense bids in the short-term to get the yellow metal toward the $1,900 level that would be a bridge to the longer-term $2,000 and record high targets.

While a return to $1,800 itself was within striking range in Friday’s trade—with the COMEX front-month reaching a session high of $1,798.30—the bigger problem for gold will be muscling past the $1,830-$1,835 resistance.

Only on Monday, it broke that impasse, scaling a two-month high of $1,854 as fears of runaway US inflation reinforced the yellow metal’s standing as a hedge against price pressures.

Now, the $1,830-$1,835 resistance is likely to become an even bigger bugbear for gold, after the blow dealt by the Fed.

Gold Monthly
Gold Monthly

“Gold has been stuck for months between a rock and hard place made up by the $1,785 support and $1,835 resistance,” said Phillip Streible, precious metals strategist at Blueline Futures in Chicago. Adding:

“When it got above $1,850 this week, gold longs got excited that they had finally broken new path. Well, the Fed has just proven that that’s not the case. It’s back to the drawing board for gold bulls.”

However, Streible said he bought Thursday’s dip in gold “on the belief that we’ll get back to $1,800.”

Fed Chair Jerome Powell, at the conclusion of the central bank’s January policy-making on Wednesday, did not discount the possibility that US interest rates might go up every month this year after the first pandemic-era hike is in, possibly in March.

Gold has always been branded as a hedge against inflation while rate hikes are typically negative for the yellow metal.

The Fed dropped interest rates to virtually zero after the COVID-19 outbreak of March 2020, and kept them for over 20 months. Powell and other central bank officials say a series of rate hikes are needed now to curb price pressures ramping up as a result of the trillions of dollars of pandemic relief spending and supply chain disruptions caused by the crisis.

Prior to its January run, gold had trouble living up to its billing as an inflation hedge as the Dollar Index and US Treasury yields spiked instead on expectations of rate hikes. That appeared to change when the yellow metal broke past the $1,835 resistance more than a week ago and stayed there.

“The breakout above $1,850 was actually a fake-out scripted by the bears in the backdrop of Fed's hawkish tone that turned tables on the bulls, pushing gold down to $1,791,” said Sunil Kumar Dixit, chief technical strategist at skcharting.com and a long-term follower of gold charts.

Gold Weekly
Gold Weekly

Dixit said gold’s weekly stochastic reading of 60/69 made a negative crossover below the 70 line, supported by a downward pointing Relative Strength Index that showed domination by bears in the market.

He added:

“It looks like the rout is far from over as the weekly close below $1,797—which is a 50% Fibonacci retracement, measured from the $1,678 low of March 2021 to the $1,916 peak that followed—may extend the bearish bias which will target $1,785, $1,770 and $1,753 initially.”

On the other hand, gold’s daily stochastic reading of 11/32 was approaching oversold territory, said Dixit.

“This may start a short term reversal by mid of next week, causing a bounce back in gold prices to retest the $1,818-$1,825-$1,835 levels.”

Despite the near-term odds stacked against gold, some analysts remain hopeful that the metal will find the vigor required to approach record highs again this year if the US inflation theme remains strong through 2022.

In 2020, gold got to all-time highs above $2,100 on the back of inflation concerns as the US started to build its biggest budget deficit with the onset of COVID-19.

But others opined that the challenges facing gold in the current era of US monetary policy should not be understated.

“Gold is vulnerable to further technical selling now that the $1,800 level has been breached, with $1,760 providing key support,” said Ed Moya, analyst at online trading platform OANDA.

”Risk aversion will eventually lead to some flows back into bullion, but that won’t happen until this selloff is over.”

Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold a position in the commodities and securities he writes about.

Gold Bulls Go Back To The Drawing Board After Blow Dealt By The Fed
 

Related Articles

Gold Bulls Go Back To The Drawing Board After Blow Dealt By The Fed

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (14)
NLP NLP
NLP1 Jan 29, 2022 2:13PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I haven’t commented in a while but I’ve been enjoying your writing nonetheless. Everyone knows that gold should have jumped well over $2000 with the printing press running overtime these last years. It didn’t. Now everyone knows gold should lose desirability as rates creep up. It shouldn’t, if the diversion from normal continues. Whatever is supposed to happen doesn’t happen is apparently the new normal. Strange times.
DrFunkenstein hayson
DrFunkenstein hayson Jan 29, 2022 11:56AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
the fed is trapped and they know it. they would have to raise to 70 basis points minimum to get inflation under control. not going to happen. they are out of options and out of time. precious metals going way way higher
Zaw Zaw
Zaw Zaw Jan 28, 2022 10:57PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
so thank Sir.
Robert Flores
Robert Flores Jan 28, 2022 3:10PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I have a strong opinion- fed will only hike twice, they cant let govt default on so much debt, they need to inflate it away. The manipulated inflation number will drop below 5% in the coming months and that will pause hikes. Gold will be steady with a strong stock market- or will shoot up with a bear market. Bond market will dictate the fate fo both stocks and PMs-
AIM Investor Journal
AIM_IJ Jan 28, 2022 11:49AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
So four rate increases now that are a known (and more or less priced in). Up to the Fed to deliver. This doesn't feel like the beginning of a downtrend in commodity prices, all of which are being hit, but rather a brief pullback on USD strength.
Barani Krishnan
Barani Krishnan Jan 28, 2022 11:49AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
No, these rate hikes will be more psychological than anything. But eventually, they'll matter.
Doug Wildman
Doug Wildman Jan 28, 2022 7:39AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
As soon as Biden gets agreement on Build Back Better, up, up, up.
John Cerniuk
John Cerniuk Jan 28, 2022 7:39AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
not gonna happen soon and when it does it will be spoon fed into the economy. just little pieces as the FED pulls the drain on the liquidty tub it wont do much for the market
SunilKumar Dixit
SunilKumarDixit Jan 28, 2022 7:39AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Doug Wildman. The way Gold is hammered every time it starts raising its head, the bullish momentum would require a strong trigger and it is a question of time now, until then, we may continue to see Gold Breakouts turning Fake outs.
Barani Krishnan
Barani Krishnan Jan 28, 2022 7:39AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
John Cerniuk  and Doug, you're both right in your own way. The BBB, if it comes to fruition, should add to the spending that would theoretically bode well for gold. John's point cannot be disputed, however -- that with the Fed being at its hawkish best in generations, the general psyche of easy money will be defeated here on. Sunil, as always, adds a nice technical backdrop to the situation. Thanks, gents.
Jimmy Smith
Jimmy Smith Jan 28, 2022 7:39AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Exactly. Up, up, up goes inflation even more.
John Cerniuk
John Cerniuk Jan 28, 2022 7:30AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
another great article 👏
Barani Krishnan
Barani Krishnan Jan 28, 2022 7:30AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Thanks much John and happy weekend to you.
la popeye
la popeye Jan 28, 2022 7:02AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
as soon as we will see that the fed is far behind inflation , gold will soar.even if you promise 3 % on int. rateand 8 % infl. Do the math !
SunilKumar Dixit
SunilKumarDixit Jan 28, 2022 7:02AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
la popeye. It's a make do believe sort of manoeuvres Fed is playing with people. They have been wrong, absolutely wrong in gauging the inflation velocity and still manage to thrash gold every time it tests 1830-1835
John Cerniuk
John Cerniuk Jan 28, 2022 6:58AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I think week hands will push one last major sell off in gold futures as bond holders believe the FED will get ahead of the inflationary curve. the FED will push us into a recession buy being too aggressive with rates and QT in anycase even if inflation comes down a few points and and rates go up a few points they are still going to be negative bearing assets
trau truu
trau truu Jan 28, 2022 6:27AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
the relation between yields and gold is made up by wall street to control the prices of gold futures (these don't correlate with the price of gold very well, as we are seeing right now, as you can't really buy any actual gold products without some hefty premium, because gold is in high demand). the media keeps repeating that gold is a "non yield bearing asset", but I would ask who in his sane mind would care about the 1-2% yield of governent bonds? and more specifically - why would someone who considers buying gold care about bonds at all? it's all fake.
SunilKumar Dixit
SunilKumarDixit Jan 28, 2022 6:27AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
taru truu. Absolutely correct you are. Everything is going stage managed and planned.
Robert Flores
Robert Flores Jan 28, 2022 6:27AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Actually, you can get a 5.5% yield on gold or more, just buy paxgold and deposit in celsius and get paid weekly
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email