Gold price closed the week with a small change compared to last Friday’s close. On a gold futures basis, the most active December 2021 contract is currently fixed at $1,750.60, meaning a net gain of $0.80 (+0.05%) per day. Market analystsdollar series for the weekly outlook of gold analyzes and evaluations of Gark S. Wagner and Christopher Lewis. Cryptocoin. com we have compiled for you.
Fed acknowledges inflationary pressures will persist longer than anticipated
The key event that dropped gold significantly on Thursday was the release of the FOMC meeting statement and Chairman Jerome Powell’s press conference. The Federal Reserve’s statement on when tapering will begin indicates that tapering will begin “soon.” Markets now believe that an announcement about when the Federal Reserve will begin the process of reducing monthly asset purchases will be made in November and tapering could begin as early as December.
According to market analyst Gark S. Wagner, the news that has baffled market participants and gold investors is the newly revised “dot chart” showing forecasts for interest rate normalization. The latest projections suggest a rate hike next year instead of 2023. The Federal Reserve makes it clear, emphasizing that timelines to start contraction and timelines to start removing interest rate normalization have different criteria.
The Federal Reserve also acknowledges that inflationary pressures will likely continue for longer than anticipated in the nearest time. The Fed focuses on maximum employment rather than inflationary pressures, both of which make up its primary, dual mandate. Inflationary pressures continued to rise, as evidenced by the August CPI released this month. It indicates an increase of 0.3% between July and August.
“Gold price reacted strongly to the possibility of the Fed to raise interest rates faster”
The report from the Bureau of Labor Statistics also states that inflation rose to 5.3% for the 12 months ending August 2021. “The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.3 percent in August on a seasonally adjusted basis after rising 0.5 percent in July, the U.S. Bureau of Labor Statistics reported on Friday. In the last 12 months, the all items index has increased by 5.3 percent before seasonally adjusted. ” Analyst Gark S. Wagner states that this report is most likely the rationale behind the Federal Reserve’s pulling up the tapering timeline when they are going to raise interest rates for the first time since the start of the pandemic 20 months ago.
Against the potential for interest rates to rise faster than the Federal Reserve had previously predicted, the gold price reacted strongly to a downtrend. This is because higher interest rates naturally increase the investor’s opportunity to hold gold that does not earn interest. Gold is currently very sensitive to lower prices and is technically at a key and critical level. Our technical studies show a Fibonacci harmonic between two datasets, one generated from daily charts and one from weekly charts.
Analyst says the longest dataset started in October 2018 when gold was trading at $1,171 up to the current record high reached in August last year when gold peaked at $2,088 and is currently at this week’s low. states that this long dataset matches the 38.2% Fibonacci retracement. Gark S. Wagner continues his analysis as follows:
It also matched the 61.8% Fibonacci retracement generated from the daily chart. A Fibonacci harmonic occurs when two different data sets have the same price point for one of the key Fibonacci numbers. This makes the price a much more critical level technically.
Christopher Lewis: Dollar rise could create headwind for gold price
Gold markets initially rallied during the week but failed at the 50-week EMA at which point the market formed an upside hammer and therefore a breakout is likely, according to market analyst Christopher Lewis. The analyst points to the following technical levels for the gold price:
The $1,750 level continues to offer support and therefore, if we break below that, then I think a drop to the $1,680 level is likely. Breaking below this level will pave the way for a major move up to the $1,500 level. On the other hand, if we turn to a break above the candlestick for the week, then we are likely to look at the $1,835 level.
Christopher Lewis states that the US Dollar Index has a negative correlation with the gold price, and as a result, it is possible that the rise of the dollar will create an upside head for the gold price. On the other hand, if the market sees the US dollar falling, this will give gold markets a lift towards the 50-week EMA, and breaking above it will add more momentum to this market and open up the possibility of a breakout. Christopher Lewis makes the following assessments:
Interest rates in the US, of course, have a huge impact on the price of gold. Because rising rates are a killer for the gold price. However, the market will likely continue to see the 10-year yield correlation take effect as well. Still, this is definitely a market that looks set to fall. Therefore, falling below the candlestick not only compresses this market, but also perhaps makes it a little aggressive.