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 Seen Down Next 2 Months On More Hawkish Fed

By Investing.com (Barani Krishnan/Investing.com)CommoditiesMar 23, 2022 05:30AM ET
www.investing.com/analysis/gold-seen-down-next-2-months-on-more-hawkish-fed-200620634
Gold Seen Down Next 2 Months On More Hawkish Fed
By Investing.com (Barani Krishnan/Investing.com)   |  Mar 23, 2022 05:30AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Gold longs got the vindication they wanted when the yellow metal finally hit $2,000 an ounce two weeks ago, ending their 19-month long wait to recapture the level last seen during the COVID-19 crisis.

Now, they might have to wait another two months, or possibly longer, for bullion to have another shot at that level.

This is based on the super hawkish mood of Federal Reserve bankers—from Chairman Jerome Powell down—in plotting the most aggressive ramp-up in US interest rates in two decades to fight inflation, which is growing at its fastest in 40 years.

And gold has been slowly responding to the Fed’s ever-hawkish stance, falling from a Mar. 8 peak of $2,078.80 on New York’s COMEX futures to below $1,920 in Wednesday’s Asian trading window.

Anyone doubting the dark clouds gathering over the yellow metal just need to look at the US 10-year Treasury note, which has been showing renewed vigor in recent days, aiming for highs last visited in May 2019. The opposite paths taken by benchmark US Treasury yields and gold is legendary.

Spot Gold Daily
Spot Gold Daily

Charts courtesy of skcharting.com

The 10-year note briefly tanked after the Fed’s first pandemic-era rate hike of just 25 basis points a week ago. It stayed down until Powell suddenly switched gears this week on the central bank’s inflation-fighting thrust. 

In a speech to the National Association for Business Economics in Washington on Monday, Powell erased words like “patient” and “nimble” from his policy vocabulary, and inserted terms like "expeditiously" and "more aggressively" instead to describe forthcoming rate hikes.

Central to the theme of Powell and his policy-making cadres at the central bank’s Federal Open Market Committee (FOMC) is a 50 basis point hike, which Goldman Sachs says could happen back-to-back at the May and June FOMC meetings. The committee is due to meet six times in all between now and the end of the year and Powell said there could be a rate hike each time it meets. 

Spot Gold Weekly
Spot Gold Weekly

More interestingly, when asked at the Washington forum on what could dissuade the Fed from approving a 50 basis point hike next, he replied emphatically: “Nothing.”

It was a 180-degree reversal for the Fed Chair who, just two weeks ago, appeared genuinely concerned about the economy amid heightened worries from the fallout of the Russia-Ukraine war. The last time Powell did such policy U-turn was when he suddenly dropped “transitory” at the end of last year to describe inflation, after downplaying price pressures for months earlier.

It may not be surprising that the Fed Chair is finally coming to terms with the reality of price pressures. 

The US economy grew 5.7% last year, growing at its fastest since 1984. But inflation, measured by the Consumer Price Index, grew at an even faster rate, expanding by 7% in 2021, its most since 1981. Since then, CPI has continued tearing through the roof, expanding 7.5% YoY in January and 7.9% YoY in February.

What’s really surprising, notes Craig Erlam, analyst at online trading platform OANDA, is the preparedness of investors for Fed rates to reach 2% by the end of the year.

“That's an incredible, aggressive tightening cycle and would mean at least one 50 basis point hike at a meeting, something we haven't seen in more than 20 years,” said Erlam.

And reflecting that investor resolve in the stock market, which rallied in five of the past six sessions, giving the S&P 500 a net gain of just over 4%, has been helped largely by rising bank stocks celebrating the higher interest rate regime. 

With a super-hawkish Fed combined with a super-bull stock market, do gold prices—which typically thrive in an environment of economic and political fear—stand a chance?

So, where could gold go from here through April, and through May and June when the two 50 basis point hikes anticipated by Goldman Sachs are carried out?

The logical answer is $1,800, maybe even lower, and that’s not stretching it, says Sunil Kumar Dixit, chief technical strategist at skcharting.com.

Basing his call on the spot price of bullion, which at the time of writing stood at just under $1,919, Dixit said gold’s downward path was established after it was rejected at the $2,070 peak to slide for a third week in a row.

Spot Gold Monthly
Spot Gold Monthly

The persistent reluctance of gold longs to chase a bullish trend may largely be due to the potentially bearish double-top formation at $2,074 and $2,070 that was clearly visible on spot bullion’s monthly and weekly charts, he said.

“Breaking below $1895, gold can attempt to dig into $1,850-$1,825, the later being a confluence of the 50 Exponential Moving Average and the 100 Simple Moving Average on the weekly chart,” said Dixit.

The oversold stochastic reading of 14/17 on the daily chart can support a short-term bounce to $1,935-$1,955, and hold above that can lead to a recovery extending to $1,985-$2,010.

But if longs wish, they could also see the near-term gold correction as an opportunity to buy in at a meaningful discount—something that may not be possible if the fallout from the war in Ukraine and the ensuing geopolitical and economic impact proves bigger than any Fed rate hike.

In such a scenario, gold could entrench itself firmly in $2,000 territory from mid-June onwards to crack the August 2020 record highs of $2,121.70 on New York’s COMEX futures and $2,073.41 on spot gold.

“If gold digs deeper now into $1,825 and even $1,800, this may just be a last call to come on board, before the next big and huge bull run begins that has initial targets at $2,150 and $2,500 over the next two quarters,” said Dixit.

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 positions in the commodities and securities he writes about.

Gold Seen Down Next 2 Months On More Hawkish Fed
 

Related Articles

Gold Seen Down Next 2 Months On More Hawkish 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 (17)
Sagar Deshpande
Sagar Deshpande Mar 27, 2022 6:36PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Sorry good will not hit 2550. It is used by people in vhina and india big time It will go down
Siti Sherina Chai
Siti Sherina Chai Mar 27, 2022 12:03PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Great article sir!!! Just ignoree haters comment. Wishing you well and stay positive!!
Stan TheMan
Stan TheMan Mar 24, 2022 8:55AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Now, they might have to wait another two months, or possibly longer, for bullion to have another shot at that level. I reckon we will be there in 2 weeks.
Barani Krishnan
Barani Krishnan Mar 24, 2022 8:55AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Hindsight is always a great thing isn't it, considering this was posted 48 hours ago. Nevertheless, looking at the sheer volatility of markets tied to the conflict, it'll be a surprise if gold gets to $2,000 in one line and stays there for the next two months. Bests. - B
Stan TheMan
Stan TheMan Mar 24, 2022 8:55AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Barani Krishnan  The conflict is going to have huge ramifications for global markets. It will inevitably require more QE IMO.
Robert Flores
Robert Flores Mar 24, 2022 8:55AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Barani Krishnan well, we always want to use past results to give us the future . Last time it consolidated 1.5 years, it could have another long consolidation - but i think it will go new ATH along with BTC in just a few months
Robert Flores
Robert Flores Mar 23, 2022 2:50PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Gold miners however are holding the line pretty well! GDXU gives you 3x miners leverage without worrying about expiration, margin calls or the risk of individual stocks -based on order flow im looking for 1895 to add to my longs heavy, but it doenst seem like we will get there
Mohammad Bakhshi
Mohammad Bakhshi Mar 23, 2022 1:37PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
“The war” says…
Phil Wohlrab
Phil Wohlrab Mar 23, 2022 8:27AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Powell can squeeze his ******cheeks as tight as he wants; rates won't go above 2%
Barani Krishnan
Barani Krishnan Mar 23, 2022 8:27AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Now, that's another way of looking at it :)) (thanks for the crass humor)
Тони Chuk
Тони Chuk Mar 23, 2022 7:51AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
fine, I'll have some more of it! :)
Phil Wohlrab
Phil Wohlrab Mar 23, 2022 7:46AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Another negative gold article. Is there any other kind?
Barani Krishnan
Barani Krishnan Mar 23, 2022 7:46AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Phil, as I told Dough Wildman below: Sarcasm doesn't help when you're missing the forest for the trees. There is clearly a timeline in the story for the thesis that the technician Sunil Kumar Dixit and I have presented. And that is a two-month span. From the headline to the second paragraph and throughout the copy,  this two-month element appears. Even when the $2,500 possibility is cited at the bottom of the copy,  it adds the "mid-June onwards" timing.
SunilKumar Dixit
SunilKumarDixit Mar 23, 2022 7:46AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Phil. Whether the story is negative or positive largely depends on which side of the markets you have your positions. Read the article in its totality.
charles Robinson
charles Robinson Mar 23, 2022 7:31AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
these interest rate hikes will destroy the bond market housing market and stock market before it gets high enough to hurt gold or inflation for that matter.
Barani Krishnan
Barani Krishnan Mar 23, 2022 7:31AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
That's a possibility, Charles.
peter neal
peter neal Mar 23, 2022 7:02AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Sure Gold is going down. Thank for the information I will sell everything I have.
Meru Pet
Meru Pet Mar 23, 2022 7:02AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
The author is a bit unlucky today, it doesn't mean he is wrong
Barani Krishnan
Barani Krishnan Mar 23, 2022 7:02AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Meru Pet  Thanks, Meru. It is a two-month overview, anyway.
Barani Krishnan
Barani Krishnan Mar 23, 2022 7:02AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Just through the May/June Fed cycle, Peter Neal.
 
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