Gold Price Drop Tests 7-Month Uptrend as Key US Inflation Data Looms

[MongiIG]

GOLD PRICE OUTLOOK:

• Gold prices sink as the markets re-price for a more hawkish Fed
• Traders’ focus now turns to December’s US PCE inflation gauge
• Prices are on the cusp of breaching 7-month rising trend support

Gold prices have taken a beating in the wake of this week’s FOMC monetary policy announcement. A relatively staid statement was followed by an explosive press conference with Fed Chair Jerome Powell, where he took an assertively hawkish stance.

Financial markets responded accordingly. Rate hike expectations swelled, driving bond yields higher while priced-in inflation bets cooled. That lifted real interest rates, undermining bullion’s alternative store-of-value appeal. Prices plunged, suffering the largest two-day loss since late November.

The spotlight now turns to the release of the Fed’s favored PCE inflation gauge. December’s reading is expected to show that core price growth accelerated to 4.8 percent on-year, marking the fastest pace in nearly four decades. An outcome reinforcing this week’s hawkish outlook pivot may give gold another nudge lower.

Near-term follow-through might be limited absent an eye-catching upside surprise however. The markets have already marked a significant re-pricing of rate hike bets this week. A PCE outcome that registers broadly in line with baseline forecasts may thus open the door for a bit of consolidation ahead of the weekend.

 

GOLD TECHNICAL ANALYSIS – RISING TREND SUPPORT UNDER PRESSURE

Gold prices sank to rising trend support guiding them higher since August 2021. A breakdown here may expose support anchored at 1750.78. Resistance remains in the 1834.14-49.64 area, with a breach above its upper bound setting the stage to challenge November’s swing top at 1877.15.

Gold price chart created using TradingView

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Written by Ilya Spivak, Head Strategist, APAC for DailyFX. 28th Jan 2022