Gold Price Talking Points
The price of gold trades to a fresh monthly high ($1842) following the kneejerk reaction to the larger-than-expected uptick in the US Consumer Price Index (CPI), and bullion may continue to retrace the decline from the November high ($1877) if it manages to clear the opening range for 2022.
Gold Price Stages Five-Day Rally for First Time Since November
The price of gold appears to be on track to test the January high ($1854) as it stages a five-day rally for the first time since November, and bullion may continue to recoup the losses following the Federal Reserve interest rate decision as the rise in longer-term US Treasury yields does little to derail the recent rally in the precious metal.
As a result, further evidence of persistent inflation may keep gold prices afloat even though the ongoing rise in the US CPI puts pressure on the Federal Open Market Committee (FOMC) to adjust its exit strategy, and the central bank may show a greater willingness to normalize monetary policy sooner rather than later as “the economy no longer needs sustained high levels of monetary policy support.”
It remains to be seen if Chairman Jerome Powell and Co. will project a steeper path for the Fed Funds rate as the central bank is slated to release the updated Summary of Economic Projections (SEP) at its next interest rate decision on March 16, and indications for a series of rate hikes may produce headwinds for gold as the central bank looks to winddown its balance sheet in 2022.
With that said, expectations for an imminent shift in Fed policy may keep the price of gold within the January range, but the precious metal may continue to retrace the decline from the November high ($1877) if it manages to clear the opening range for 2022.
Gold Price Daily Chart
Source: Trading View
- The broader outlook for the price of gold remains relatively flat as the 50-Day SMA ($1807) and 200-Day SMA ($1807) continue to converge with one another, and the precious metal may continue to trade within a defined range as it tracks the price action from the fourth quarter of 2021.
- However, the price of gold may attempt to retrace the decline from the November high ($1877) if it manages to clear the opening range for 2022, with a break/close above the Fibonacci overlap around $1837 (38.2% retracement) to $1847 (100% expansion) bringing the January high on the radar ($1854).
- Next area of interest comes in around $1859 (23.6% retracement) followed by the $1876 (50% retracement) region, which largely lines up with the November high ($1877).
- At the same time, failure to break/close above the Fibonacci overlap around $1837 (38.2% retracement) to $1847 (100% expansion) may push the price of gold back towards the $1816 (61.8% expansion) to $1829 (38.2% expansion) region, with a move below the monthly low ($1789) bringing the January low ($1779) back on the radar.
— Written by David Song, Currency Strategist
Follow me on Twitter at @DavidJSong