Gold’s price moved higher for the second consecutive week ending 23rd of January, while it remains in positive territory in the current. Gold traders may be in rather excited state, as economic data released in the following days have the potential of increasing volatility substantially. This week’s report will focus on some important fundamental developments that could be behind Gold’s recent price action. The information presented in this report can be used to form accurate decisions on the Gold market while our technical analysis at the end will assist traders with important price levels to keep in mind.
Among Gold’s top characteristics is that the precious metal tends to increase in value during periods of economic risk and geopolitical uncertainty. On the 19th of January, Gold performed a rather significant day upwards, as its price gained approximately $28 reaching a new monthly high. In our opinion, the current tensions on the Ukraine border with Russia building a number 100K troops, seems to be keeping traders on the edge and lifting the Gold market higher. The fact that the US and Europe are already involved and preparing for an event to take place, can be evidence that the world stage is currently on top of the matter and can be affected by any military tensions. Gold prices not only jumped but also stabilized higher indicating the market may need more information prior to making changes to orders. Even today, headlines on a number of televised media sources stated that the escalation of the matter is ongoing. We would suggest Gold traders keep an eye on the subject as the tensions could possibly send Gold prices higher.
On a separate note, the ongoing spread of the omicron variant continues to strain economies around the world. The rising infection rates observed in January, can be keeping more workers sidelined at the moment, creating difficulties with production and distribution of goods. Preliminary US Markit PMI Manufacturing and Services figures for January where down as indicated in the past days, possibly as a result of the pre mentioned while supply could be impacted in the short term. However, the positivity on this front seems to be that consumers demand remains strong pushing prices higher. In this case Gold’s recent upward movement could have also been triggered due to its nature as a hedging instrument that counters higher prices.
On Wednesday the 26th of January, the FOMC meeting stands out as the star event of the week. The meeting consists of the FOMC Statement and the Interest Rate decision that will be announced simultaneously, while the FOMC press conference with Jerome Powell’s remarks, will follow 30 minutes later. Comments on the uncomfortably high inflation rates are expected to be of particular interest to analysts and traders. With inflation rates seemingly getting out of hand, the matter is currently a priority for the FOMC and may even force the Fed to take consistent action throughout the current year in order to bring the rates lower. This maybe a promise for a rollercoaster ride for the markets but also for Gold as its sensitivity to changes in monetary policy may be displayed. Overall, Wednesday’s event is much anticipated, as the FOMC could confirm the market’s expectations for the central bank’s first rate hike in 2022, which is forecasted to be in March. Caution is advised as Gold’s price action can be undertaken by temporary large swings throughout the event. Finally, in the farfetched scenario of an unexpected rate hike, volatility in the Gold market could rise abruptly and traders are cautioned to make adjustments to protect their accounts.
Looking towards the following days, the economic calendar is pact with a number of releases that can be useful to Gold traders as they may create opportunities. As noted, the FOMC meeting on the 26th for January stands out, while on the 27th we get the US GDP Advanced and the Core PCE Prices Advance rates both for Q4, along with the Initial Jobless claims figure for the week. On the 28th we get the Core PCE Price Index rate for December and the Final University of Michigan Sentiment for January. Finally, on the 1st of February we get the very important ISM Manufacturing PMI figure for January.
Technical Analysis
XAU/USD H4
At the moment, Gold is currently in an upward trend line which has commenced since the 15th of December. The upward trend is highlighted with the ascending line colored with yellow on our chart. The price action at the moment remains stable close to the (R1) 1845 resistance level, while this level remains the top so far in January. If the trend upwards persists then the (R2) 1870 which was a top level back in November, could become a target for buyers. The highest resistance is the (R3) 1900 line which can be a great challenge for the bulls, as it was not breached since the previous June and can be used in the scenario of an extended buying strategy. If the bears take over, then the (S1) 1810 support level can be engaged first as it was in the previous week. Lower we note the (S2) 1785 line that was tested various times from mid-December to the 7th of January. At the end the (S3) 1765 which was used as a support level in December, can be used if the bears take extensive action and dominate the scene. The RSI indicator remains nearby 50 on the four hour chart and we believe this can be a sign that traders may be in a wait and see position for the events to be released in the following days.
