A notable correction to the downside has captured Gold’s price in the most recent daily sessions. At the moment, Gold is trading below the $2000 round level, after performing a swift run to the new 2022 high price in the past week. The large swing for Gold’s price seems to imply a drastic change in economic developments around the world and this report aims at bringing these factors to light. Leaving aside the fundamental updates presented in this outlook, our Gold report can also be used as a guidance to trading through our technical analysis, which will point out important levels and possible trends.
The fact that Gold has made a substantial correction to lower grounds, can be attributed to several reasons. First Gold’s price rushed to a new 2022 high on the 8th of March as sanctions against Russia where announced. In this case the risk on sentiment which sometimes fuels Gold’s price may have been removed. It is also possible that Gold may have been undertaken by a technical correction, as traders that joined the bullish side of Gold early in March, may have booked significant profits allowing them to lock in the gains. Furthermore, in the past sessions the U.S. 10-year Treasury yields rose above 2.10% a sign which maybe considered bearish for Gold prices. Another bearish sign for Gold could be its adverse relationship to the US dollar. In the previous report we noted the correlation between Gold and the USD may have been positive but as the greenback stabilized higher in the past days, Gold prices dropped confirming the competitive nature is back on track. In addition, Gold could be in a positive correlation with Oil prices at this time, as Oil is trading notably lower compared to last week.
In the current week, Gold traders are in the favorable position to have an exciting economic calendar to work with. The events are spread throughout the next days and may create substantial volatility for Gold’s price. Starting on the 16th of March, during the early US session, we get the US February Retail Sales rate while later the same day, we expect the key economic event of the week which is the FOMC meeting. This event is of great importance for the Gold market as the central bank is expected to announce a rate hike of 25 basis points. On a side note, FFF currently imply a probability of 91% for a 25-basis points rate hike, while the remaining 9% is in favor of a 50-basis points rate hike. In this case the actual outcome of the meeting could create different price reaction. Even though a 25-basis points rate hike may have already been priced in by the market, in our view, a 50-basis points rate hike could create an extraordinary volatile session for the markets. This will be the first time the Fed will hike rates since December 2018. The event will take place during the mid US session and will consist of the Economic Projections, the FOMC Statement and the FOMC Interest Rate decision. 30 minutes after the release we will also get the FOMC press conference with Chairman Jerome Powell’s speech where he will also be replying to questions. This event has the potential of moving Gold prices abruptly and traders may have to approach the market with caution as risks could be elevated. On the 17th of March we get from the US the weekly Initial Jobless Claims, the February Housing Starts Number the February Industrial Production rate and the March Philly Fed Business Index. Finally, on the 18th of March, we get the US Existing Home Sales for February.
Moreover, traders are also considering action carried out by other major central banks in the world. At this point it could be useful to note the fact that BOE is expected to impose a rate hike on the 17th of March. Additionally, during the past week the ECB announced a faster than expected reduction of its Asset purchase programme (APP). These actions could be signaling a post pandemic economic transitioning period for some of the major economies of the world and some of Gold’s recent price action may have been a result of these changes.
On a separate note, Gold traders continue to monitor developments of Russia’s war in Ukraine. Even though no signs of progress to cease fire have been made, Gold’s price has returned to lower grounds and may not reflect the fact that Russia’s military operations seem to have intensified recently.
Technical Analysis
XAU/USD H4
Gold’s downward trendline has intensified in the most recent four-hour sessions and the trend is highlighted with the yellow descending line on our chart. At the moment Gold is trading at 1925 which is exactly in the middle of our range between the (R1) 1950 resistance and the (S1) 1900 support. Yet if the downward movement persists, the (S1) 1900 could be engaged and tested. In this scenario, traders may turn their attention to even lower ground picturing the (S2) 1881 line which was approached briefly in the last days of February. At the end the (S3) 1852 is noted as our final support. In the opposite scenario if Gold regains upward momentum, we may see the (R1) 1950 line being targeted. Higher the (R2) 1975 level which has been the February high level is imminent while even higher the (R3) 2000 line may act as a barometer for the bullish trend. For this analysis we have selected to insert also the (R4) 2051 which is also the 2022 high reached in the past week. Currently, Gold remains in a downward trendline yet if the price action continues to move withing the (R2) and (S1) range we may see a sideways motion forming. The RSI indicator is currently testing the 30 level giving the notion for a bearish sentiment.
