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Gold’s First Quarter Shows Record High Might Remain Elusive

By Investing.com (Barani Krishnan/Investing.com)CommoditiesApr 01, 2022 04:32AM ET
www.investing.com/analysis/golds-first-quarter-shows-record-high-might-remain-elusive-200621328
Gold’s First Quarter Shows Record High Might Remain Elusive
By Investing.com (Barani Krishnan/Investing.com)   |  Apr 01, 2022 04:32AM ET
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So, gold got the standing ovation it deserved for its first-quarter showing? Great.

Now, the next big question: Will it soon make the record-high that longs in the game have been expecting for a while? Unfortunately, that seems a little more elusive, if the quarter that just ended is any indicator.

As trading for April opened on Friday, the most active gold futures contract on New York’s COMEX hovered at $1,935 an ounce in the Asian trading window.

A day ago, that gold futures benchmark settled at $1,949.20. 

That gave it a 2.6% gain for March and a 6.6% rise for all the first quarter.

Gold Daily
Gold Daily

All charts courtesy of skcharting.com

The last time COMEX gold gained more in a three-month period was when it rose 14% in the second quarter to June 2020.

Even so, gold failed to make a record high in March despite turbo-charged US inflation and geopolitical tensions bubbling in the aftermath of Russia’s invasion of Ukraine. The yellow metal is seen as a protection against such economic and political troubles.

On Mar. 8, COMEX gold peaked at $2,078.80—coming $43 short of matching its August 2020 record of $2,121.70. 

The spot price of gold went to $2,070.29 that same day, leaving an even narrower gap—of less than $4—versus its August 2020 peak of $2,073.41.

To chartists, the yellow metal’s failure to beat its 2020 high was illustrative of the yellow metal’s equally-potent superior and vulnerable sides.

On the weaker side, gold’s technical foundations were damaged when it hit one-month lows under $1,900 on Tuesday, reaching $1,888.30 on COMEX and $1,890.03 on the spot market.

Gold Weekly
Gold Weekly

“Gold's rejection from the top isn't new, rather it’s a trend,” said Sunil Kumar Dixit, chief technical strategist at skcharting.com.

Dixit, who uses the spot price to make his calls, said physical bullion first faced rejection at $2,070, then cascaded to $1,966 before the “panic selling” that took it to the $1,890 level.

“The immediate rebound of $60 that followed from there to $1,950 shows that rallies are discounted and controlled by bearish forces,” said Dixit.

In the short term, he sees spot gold straddling a tight $80 range that will enable it to move in the $1,970 to $1,890 band as the Federal Reserve tries to stop runaway US inflation in its stride with a series of rate hikes. 

“Breaking below $1,890 can expose the metal to $1,810, though a decisive break above $1,970 can make way for a new peak of $2,050. For the short term though, gold appears to be confined within the $2,000 range.”

Craig Erlam, an analyst at online trading platform OANDA, concurs with that.

“Gold will find major resistance at the $1,970 level, but if that isn’t much of a barrier a clear path to $2,000 could emerge,” he said. Adding that the precious metal should remain “headline-driven,” especially on inflation and the Russia-Ukraine conflict.

Gold Monthly
Gold Monthly

Inflation has been one of the biggest propelling factors for gold prices this year. 

US price pressures, as measured by the Consumer Price Index (CPI) grew 7.0% in 2021, and 7.9% during the year to February—both at their fastest in four decades. The CPI’s expansion outpaces economic growth at 5.7% last year and is projected by the Fed at 2.8% this year.

The Fed has a mere tolerance of 2% for inflation in a year and many policy-makers at the central bank have vowed to bring inflation back to their target with as many as seven rate hikes this year and more through 2023.  

The Fed approved its first pandemic-era rate hike on Mar. 16, raising rates by 25 basis points. Now, various members of its policy-making Federal Open Market Committee, led by Chairman Jerome Powell, are considering back-to-back hikes of 50 basis points at their next meetings in May and June.

“Keep in mind, prior to Russia’s invasion of Ukraine, the outlook was looking rather bleak for the precious metal as the Fed was preparing to embark on the most aggressive tightening cycle in decades,” said Justin McQueen, a gold strategist who blogs on the Daily FX platform.

“This remains the case, and perhaps even more so, as Powell and Co. look to hike rates in 50bps clips.” 

“Therefore, it is important for gold traders to once again focus on real yields for direction, which as it stands, points to lower gold prices,” McQueen said, referring to the rate set by the 10-year US Treasury note yield.

The 10-year yield typically runs contrary to gold’s direction and was up on Friday for the first time in six days.

“From a technical perspective, gold is neutral and while I am leaning towards the downside in the precious metal, bearish conviction will grow on a break below $1,880,”  McQueen added.

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’s First Quarter Shows Record High Might Remain Elusive
 

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Gold’s First Quarter Shows Record High Might Remain Elusive

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Comments (11)
Mohd Izhar Muslim
Mohd Izhar Muslim Apr 03, 2022 8:51AM ET
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Thanks for the article
Gus McCrae
Gus McCrae Apr 02, 2022 5:52PM ET
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Gold is in high demand because of the impending recession Brandon is creating
Murali Krishna
Murali Krishna Apr 01, 2022 11:56AM ET
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Finally, The US Fed will fight PutinOpec till gold reaches $645. Fed will be forced to take on PutinOPEC. Nobody really likes the -$40 print on crude, okay?
Robert Flores
Robert Flores Apr 01, 2022 11:41AM ET
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Barani, good article , better than the last one on gold as you illustrate fundamentals and not just technicals-
Barani Krishnan
Barani Krishnan Apr 01, 2022 11:41AM ET
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Thanks much, Robert. Wishing you a blessed Friday and week ahead, mate!
Robert Flores
Robert Flores Apr 01, 2022 11:41AM ET
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You as well! Are you going to cover gold mining stocks anytime soon? They are holding better than gold itself - and some of them pay dividends
Barani Krishnan
Barani Krishnan Apr 01, 2022 11:41AM ET
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Robert Flores  I actually stick to futures coverage as we have contributors who cover gold mining stocks.
Murali Krishna
Murali Krishna Apr 01, 2022 11:05AM ET
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MuraliKrishna. Right. Rate hikes are influential, and so is the shrinking GDP and rising Unemployment, war situation far from over yet. ...) You probably meant rising employment or reducing unemployment. Gold is fully dependant on how much Fed has to raise rates. Let me assure you that PutinOPEC+ will fight the Fed, the US federal reserve Bank till the end. the real war is between PutinOPEC and US Fed.
Murali Krishna
Murali Krishna Apr 01, 2022 9:20AM ET
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Gold is stuck here not able to go down because stocks stopped going up, and not able to go up because rate hikes are coming. Killer rate hikes will take both stocks and bonds and gold down and bitcoin too. there will be nowhere to hide ... from Putin
SunilKumar Dixit
SunilKumarDixit Apr 01, 2022 9:20AM ET
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MuraliKrishna. Right. Rate hikes are influential, and so is the shrinking GDP and rising Unemployment, war situation far from over yet.
NLP NLP
NLP1 Apr 01, 2022 9:19AM ET
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Mr. Krishna, so many moving parts. An interesting notion is to consider the ramifications on gold if Russia adopts Bitcoin as a payment for oil.
Show previous replies (4)
Robert Flores
Robert Flores Apr 01, 2022 9:19AM ET
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Barani Krishnan i see a future with a multi reserve system, we already have it to an extent - eventually Bitcoin will become a reserve - as more countries reduce their exposure to USD the U.S. will have less need to print- also less power to militarize and bully - the question is can we become more resilient and bring back manufacturing and keep producing the energy and the agriculture to sustain high standards?
Barani Krishnan
Barani Krishnan Apr 01, 2022 9:19AM ET
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Robert Flores  That's possible -- a multi-reserve system (considering the euro has been an alternative of sorts to the dollar for two decades now). But the greenback will likely still dominate that evolved set-up.
Robert Flores
Robert Flores Apr 01, 2022 9:19AM ET
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Barani Krishnan too many factors to consider ! How will legislation evolve for bitcoin ? How will south America and Africa line up politically and how much growth will they have in coming decades ? What is China’s long term play? What policies will drive cbdc minting and circulation ? Etc etc
Barani Krishnan
Barani Krishnan Apr 01, 2022 9:19AM ET
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Robert Flores  Yes, A LOT to think about, mate! :)
SunilKumar Dixit
SunilKumarDixit Apr 01, 2022 9:19AM ET
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Robert. Here's the point. Bitcoin and legislation are two parallel lines with hardly any chance to meet. All the same, no major economies are willing to acknowledge it as reserve currency not now, not in future, unless there is global consensus on regulations. A virtual currency that goes up from $30000 to $60000 and plunges again to 30000 all for one tweet from Musk, can not be considered as reserve.
Frank Jackson
Frank Jackson Apr 01, 2022 8:54AM ET
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Well, one could look to history to see when the fed raises interest rates, gold has rallied. By the time the interest rate hikes come, it's already baked in. Thus, the term - forward looking market. Real rates are still very low. Don't buy the BS from the so called analyst's.
Barani Krishnan
Barani Krishnan Apr 01, 2022 8:54AM ET
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So, what's your point? The story does say that gold HAS rallied and that more rate hikes are round the corner. My point is gold's equally potent double-face -- security and vulnerability -- has made reaching a new record high difficult for the yellow metal. That was proven in Q1, and the trend may extend into Q2, which begins today. Maybe you should spare us YOUR drivel, if you've nothing more to add.
SunilKumar Dixit
SunilKumarDixit Apr 01, 2022 8:54AM ET
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Frank Jackson. The author always presents the best study and information including various dynamics ruling the markets. However if you have something that adds value, you can update in comments. Negative criticism puts you down though.
gab nea
gab nea Apr 01, 2022 7:16AM ET
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if the fed is the cause of this inflation, powell should be fired asap. if he, on purpose pumped inflation through QE, in order to shrink huge debt and raise tax revenues and make americans suffer, then we should do away with the fed as a terrible keeper of the economy. bring back gold standard.
Barani Krishnan
Barani Krishnan Apr 01, 2022 7:16AM ET
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Lots of Fed chairs of the past should have been fired then, based on your logic, though most worked with the sole aim of restoring growth and employment with minimal costs. The pandemic was a near unprecedented challenge to the Fed and the mixed economic fortunes since are also quite unprecedented. The good thing is the Fed is finally doing the right thing.
Robert Flores
Robert Flores Apr 01, 2022 7:16AM ET
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Gab, I agree that the fed is unnecessary, its always behind the curve - but money printing isnt created by the fed, they only accommodate it, its created by credit markets - no greater printer than the govt with ballooning deficits
Robert Flores
Robert Flores Apr 01, 2022 7:16AM ET
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Barani Krishnan i feel the fed is given too much credit and too much blame- the stimilus was necessary to deal with COVID- unfortunately the govt was already with their trousers down as they had too much debt from prior years
Barani Krishnan
Barani Krishnan Apr 01, 2022 7:16AM ET
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Robert Flores  Totally agree with you on both counts, Robert. The Fed's case: damned if you, damned if you don't! :)
Lawrenti Berija
Lawrenti Berija Apr 01, 2022 5:05AM ET
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hello barani. i'm confused by looking at the right trading range under European trading hours. seems there is No such thing as trading these days. i have No access to volume data, but something seems rotten. do you have any idea what this means
Lawrenti Berija
Lawrenti Berija Apr 01, 2022 5:05AM ET
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? thanks
Lawrenti Berija
Lawrenti Berija Apr 01, 2022 5:05AM ET
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never mind barani, got it. only a frozen chart. sorry for this unqualified question
SunilKumar Dixit
SunilKumarDixit Apr 01, 2022 5:05AM ET
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Lawrence Berija. Trading range is widening amidst changing Geo political situation especially in Europe and its relevance to Ukraine theater. Today's NFP can add volumes though.
Barani Krishnan
Barani Krishnan Apr 01, 2022 5:05AM ET
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Lawrenti Berija  Apols, mate. I was signed out during European hours and I just got into the system a while ago, before the US jobs numbers. I see you've figured out the answer to your question. Bests and a good weekend ahead - B
 
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