By Barani Krishnan
Investing.com - Gold jumped almost 1% on Monday, breaking out of the measured dance it has observed over the past three weeks even as bears in the market constantly checked longs trying to make leaps in the $1,800 territory.
Gold’s most active contract on New York’s Comex, April, settled up $14, or 0.8%, at $1,821.80 an ounce, after a session high just shy of $1,825. It was the biggest one-day point and percentage gain for the benchmark gold futures contract since Jan. 19 and the highest settlement since Jan. 26.
Monday’s rally in gold came ahead of U.S. inflation data due over the next three days via the reading for January Consumer Price Index.
The previous CPI reading showed a 7% yearly gain to December, the highest inflation spike since 1982. The forecast this time is for 7.3%, which could still mark a 40-year high, although there is every potential for the reading to surprise further to the upside.
Gold is generally purchased by investors as a hedge against inflation, So, in theory, it should rally when U.S. price pressures are this high.
But the Federal Reserve is also watching inflation numbers to decide on the quantum and frequency of the first pandemic-era interest rates hikes in the United States, which favor the dollar and bond yields, not gold.,
Technical charts for gold have been boosted since last week when the yellow metal stayed in $1,800 territory, braving a strong U.S. jobs report for January. The Fed is also monitoring the labor market closely to ensure that eventual rate hikes do not weigh on the economy too much that jobs would suffer.
The April gold contract on Comex could climb to $1,830 but not in a straight line, cautions Sunil Kumar Dixit of skcharting.com.
“As long as gold sustains above $1,808, we should be heading for $1,825 initially, then $1,830. But the rally would not last long, I guess. The exhaustion point should be $1,830. The longs should be very careful with the highs.”