Gold Set to Make A Record High, Supported by Technicals and Dovish FED

Gold peaked above $2,000 in March, with the risk sentiment deteriorating on the Ukraine conflict, as it was still holding the safe haven status back then. The sentiment deteriorated further ahead in 20222 as central banks raised rates at the fastest pace ever, which sent risk assets lower. Hold lost the safe haven status and tumbled lower to around $1,615, where it formed a support zone.

In October central banks and particularly the FED started to soften the rhetoric as the global economy headed into a recession, which improved the sentiment and turned Gold bullish. The decline in the UD and the uncertainty have helped the bullion move higher above $1,900.

Gold H4 Chart – MAs Keeping the Bullish Trend Going

The uptrend is picking up pace

The FED is leaving the future of rate hikes to the economic data, which has been sort of mixed in recent weeks; on one hand showing further weakness, while also suggesting that we will avoid a deep recession. This has kept the sentiment bullish for Gold and in fact, the upside momentum is picking up pace. The 100 SMA (green) was acting as support in December while this month the 50 SMA (yellow) has taken up that job.

So, the technicals are supporting Gold and fundamentals are pointing higher as well, as inflation starts to slow, the economy avoids a hard recession and central banks start to sound more dovish. Yesterday we had a number of FOMC members speaking on the economy, inflation, and rate hikes and they sounded more relaxed about most issues, which is a positive signal for risk sentiment but negative for the USD. Waller was the last to close the day and he sounded more dovish, which should send Gold above $2,000.

FED’s Waller speaking

  • Favors a 25 basis point rate hike at the upcoming meeting and continued policy tightening beyond that
  • We have made progress is still a considerable way to go toward the 2% inflation goal
  • By early December that the policy stance was slightly restrictive, time to slow, but not all the rate hikes
  • Recent CPI report good news, but don’t want to be a head fake
  • Still cautious about inflation outlook, support continued monetary policy tightening
  • Expected continued slowing of US economy this quarter is desirable in a fight to lower inflation
  • Ample evidence that fed rate hikes are dampening demand in business sector.
  • Goal is not the whole economic activity, will be watching to see how moderation continues.
  • Expected consumer spending to moderate this year, supporting job at one of maintaining progress on inflation.
  • Labor market is strong, tight in face of higher rates, allowing the FED to focus on lowering inflation. Waller sees encouraging signs of wage moderation, need to see more evidence of slowing.
  • Still optimistic that a soft landing is possible


Read More: Gold Set to Make A Record High, Supported by Technicals and Dovish FED

2023-01-22 05:39:33

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