Gold: Fed Fear Still Visible
Satendra Singh | Jan 09, 2022 08:40AM ET
Analysis of the price movement of gold futures during the first week of January 2022, finds the fear of interest rate hikes by the Federal Reserve in early March visible on its price movement since Wednesday. Gold started to melt down on Jan. 5, 2022, and continued till last week’s closing at $1797.40.
This weekly action resulted in a large bearish weekly candle formation after the third week of November 2021 that shows the thick presence of big bears between the $1833 to $1853 price range. On the lower side, a breakdown below $1776 could be the confirmation of a steep slide during the next three months.
Overall, this weekly movement during the first week of 2022 looks to be a repetition of the moves witnessed in January-March 2021. Undoubtedly, this time Omicron looks powerful enough to dent global economic growth which has compelled the Federal Reserve to taper inflation at any cost.
U.S. Treasury yields moved higher in the wake of Wednesday’s Fed minutes. The minutes implied that the Federal Reserve would be more aggressive in raising rates and unwinding their balance sheet, which buoyed yields and drove gold prices lower.
Technically speaking, gold could find a steep slide if it isn't able to defend immediate support at $1796 and second support at $1776 during the upcoming week. On the upper side, any rally in gold will only be a fake bouncing move since the formation of ‘Death Cross’ in the daily chart confirms the selling spree during the upcoming week, in case of any upward move well above $1833.
The 200 DMA could continue to provide stiff resistance in the daily chart as gold futures are trading well below this level, and the Ichimoku Clouds confirm the weakness will continue during the upcoming week. If gold futures start the upcoming week with a gap-down-opening, that could be the first confirmation of increasing weakness.
In the weekly chart, gold closed the last week just above the 26 DMA. Undoubtedly, a reversal seen from the lower levels provides some hope for an upward move from the current levels as the strength could not be enough to find a breakout above the immediate weekly resistance at $1838 and the upper end of the Ichimoku Clouds at $1902 on the weekly chart.
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The growing weakness in gold could take final shape during the upcoming week. Undoubtedly, a breakdown below $1728 will be the first step of a major melt down that could repeat the moves seen during January-March 2021.
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