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Technical Analysis

GOLD Analysis – January 12, 2022

Gold’s Daily Price Analysis

Gold prices ended the day at $1820.30, having reached a high of $1822.95 and a low of $1801.10. Gold maintained its bullish trend on Tuesday, rising for the third day in a row as the US dollar fell. The US Dollar Index, which measures the value of the US dollar against a basket of six major currencies, fell to 95.58 on Tuesday. The yield on the benchmark 10-year US Treasury note decreased on Tuesday and remained at 1.73 percent. The day’s rise in gold prices was fueled by a weaker dollar and lower Treasury yields. On the data front, the NFIB Small Business Index stayed steady at 15:50 GMT, with expectations of 98.9. At 20:00 GMT, the IBD/TIPP Economic Optimism Index fell to 44.7 from a forecast 50.2, weighing on the US dollar and pushing gold higher.

According to Cleveland Fed President Loretta Mester, the Federal Reserve may need to raise interest rates at least three times in 2022 and begin shrinking its balance sheet in order to respond to a tight labour market and persistently high inflation. Mester stated that the final monetary policy decisions would be determined by the progression of the coronavirus epidemic as well as economic factors. She went on to say that Fed officials needed to rebalance policy in order to manage inflation, which was substantially above the US Federal Reserve’s goal level.

Furthermore, Esther George, President of the Kansas City Federal Reserve, stated on Tuesday that the US central bank should work quickly to shrink its massive $8.5 trillion pile of bond holdings in order to slow the rate of the biggest US inflation in nearly 40 years. She believes the Fed’s efforts to curb inflation would be more effective if the bank reduced its holdings of long-term bonds while progressively raising short-term interest rates.

Meanwhile, US Federal Reserve Chair Jerome Powell claimed that the US economy was healthy enough and that stricter monetary policy was required. Powell stated during his re-nomination hearing before the Senate Banking, Housing, and Urban Affairs Committee on Capitol Hill that he anticipates a series of rate hikes this year, as well as a reduction in balance sheet assets.

The two Fed officials, as well as Powell’s support for raising interest rates as early as March and for the Central Bank to wind down its bloated balance sheet sooner rather than later, should have pushed the dollar higher, but the market turned red, and the US dollar came under pressure, eventually pushing gold higher.

US markets were most likely positioning themselves ahead of the release of US inflation data on Wednesday, and they mostly ignored the comments made by Fed officials on Tuesday. However, the cautious behaviour of US investors weighed on the currency and boosted gold prices.

GOLD Intraday Technical Level

Support Resistance
1806.61 1828.46
1792.93 1836.63
1784.76 1850.31
Pivot Point: 1814.78

GOLD – Technical Outlook

Although a clear upward break of the 200-day moving average helped gold prices rise the most in a month the day before, a downward sloping trend line from mid-November, around $1,825, poses a challenge to bulls. It should be observed that the MACD remains sluggish, but the higher low formation and recently strengthening RSI point to the metal’s potential for further gains over the immediate resistance line.

Following that, tops near $1,834 recorded in July and September will be scrutinized before sending gold investors towards the $1,850 barrier. Meanwhile, a bearish break of the 200-DMA level of around 1,802 will require a confirmation from the $1,800 level to persuade gold sellers.

Even so, the upward trending support line from August, currently near $1,787, will be a difficult nut to break for gold bears. To summarise, gold prices are likely to rise more technically, but fundamentals will be significantly more critical during the pivotal day.