Jump to content

Gold Price Leaps as the US Dollar Crumbles After US CPI. Where to for XAU/USD?


MongiIG

Recommended Posts

GOLD, XAU/USD, US DOLLAR, (DXY), CPI, FED, REAL YIELDS - TALKING POINTS

  • Gold rocketed higher after CPI numbers weakened the US Dollar
  • With the Fed now focused on hosing down inflation, real yields may lift
  • Volatility remains subdued as gold is kept range bound. Will XAU/USD shine?
Gold Price Leaps as the US Dollar Crumbles After US CPI. Where to for XAU/ USD?

Gold moved higher after headline US CPI printed at an ‘eye watering’ 7% year-on-year to the end of December. The highest level since June 1982, when Rocky III was breaking box office records.

If there was ever any doubt, the Fed now has a fight on its hands. The terms ‘base effect’ and ‘transitory’ will be studied by economic students for generations.

In the present, the reality of uncomfortably high inflation is front and center. Aside from price instability, the issue with high inflation is that it erodes the value of money over time.

This is good news if you are a borrower, but bad news if you are a lender.

The risk for the Fed, is that the measures required to get rid of inflation could snuff out economic growth. Some fancy footwork might be required.

Treasury yields inched lower in the belly of the curve but crept a touch higher in the short and long ends in the aftermath of the data.

All the action was in the currency ring, with the US Dollar weakening across the board. Prior to the data, there was some chatter about a higher-than-expected CPI number and the perception in the market, rightly or wrongly, is that all of the Fed’s rate hikes are fully priced in.

The US Dollar index (DXY), EUR/USD, GBP/USD and AUD/USD, among other currency pairs, saw the Dollar make multi month lows. However, gold was unable to breach the high seen last week.

This might be explained by the rise in real yields. Market priced inflation expectations moved lower, and this bumped up real yields, even in the 10-year part of the curve where nominal yields fell.

The chart below highlights these offsetting factors in play. Looking ahead, it would seem that the fate of gold is largely in the hands of changes in inflation expectations, rather than the current level of inflation.

GOLD CHART

 
 

GOLD TECHNICAL ANALYSIS

Gold has rallied to the top end of the 1753.10 – 1831.65 range that it has been in since mid-November.

Resistance could be at the previous highs of 1829.68, 1831.65 and 1877.15 as well as the pivot point of 1834.14.

There is a clustering of short, medium and long term simple moving averages (SMA) just below the price. The price has moved above and below these SMAs several times.

Technically speaking, orders related to these SMAs would have been executed and may not be there anymore. It’s possible they have been re-instated, but there may not be as much liquidity around theses SMAs as there was previously.

On the downside, support could be at the pivot points and previous lows of 1778.50, 1761.99, 1758.93, 1753.10 and 1721.71.

XAU/USD CHART

Chart created in TradingView

 

Written by Daniel McCarthy, Strategist for DailyFX.com. 13th Jan 2022

Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • General Statistics

    • Total Topics
      21,178
    • Total Posts
      90,701
    • Total Members
      41,286
    • Most Online
      7,522
      10/06/21 10:53

    Newest Member
    Afi
    Joined 29/01/23 11:39
  • Posts

    • Does anybody know the BIL (SPDR Bloomberg 1-3 Month T-Bill ETF) equivalent with a GBP currency hedge? I want the interest yield but I don't want the currency risk.
    • Capital, win loss ratio. If you have a trading edge and you can consistently win 50% of your trades, so your winning 5 trades out of 10. So if your risking 1% of your capital per trade, out of your 10 trades 5 would be losers, so that’s 5% loss and realistically out of the 5 winning trades, some would make small profits, some break even and 1, 2 or 3 could run nicely IF you can let your profits run, basically your making money out of 2 trades out of the 10 trades (80/20 Rule Pareto principle) So a $20,000 acct risking 1% is $200 per trade, this will keep the trader with his trade risk based on being able to win 50% of his trades. A long term trend trader can win with 30% wining trade. Basically you need to know your numbers. Rgds Pete
    • Investing in stocks can be a great way to grow your wealth over time. However, there are different approaches that investors can take when choosing which stocks to buy. Two of the most popular approaches are growth investing and value investing. Growth Investing Growth investing is an investment strategy that focuses on buying stocks of companies that are expected to grow at a faster rate than the overall market. These companies are often in industries that are growing quickly, such as technology or healthcare. Investors who use this approach believe that these companies will be able to generate higher profits in the future, which will lead to higher stock prices. One of the main advantages of growth investing is that it can potentially provide higher returns than the overall market. However, it is also riskier than other investment strategies, as these companies often have higher valuations and more volatile stock prices. Value Investing Value investing is an investment strategy that focuses on buying stocks of companies that are undervalued by the market. These companies may be in industries that are out of favour or have recently experienced challenges, but they have strong fundamentals and a history of profitability. Investors who use this approach believe that these companies are undervalued and that their true value will be recognized in the future, leading to higher stock prices. One of the main advantages of value investing is that it can potentially provide lower risk than growth investing. However, it may also provide lower returns in the long run, as these companies may not have the same growth potential as companies in the growth investing category. Comparing Growth and Value Investing Growth and value investing are two different approaches to stock investing, each with its own advantages and disadvantages. Growth investing can potentially provide higher returns but is riskier, while value investing can provide lower risk but potentially lower returns. An investor may choose one approach or a combination of both. A portfolio that contains a mix of growth and value stocks can provide a balance of potential returns and risk. Conclusion Both growth investing and value investing can be effective ways to invest in stocks. The key is to understand the potential risks and rewards of each approach and to choose the one that aligns with your investment goals and risk tolerance. Analyst Peter Mathers TradingLounge™ 
×
×
  • Create New...