GOLD FUNDAMENTAL FORECAST – BEARISH
Despite several event risks, gold prices remained almost unchanged last week. The overall fundamental environment is still expected to be gloomy. XAU/USD is displaying more and more technical indicators of reversal.
Gold prices ended last week fairly steadily after 5 days of turbulence as XAU/USD dropped 0.25%. The many things the yellow metal had to process were the US CPI data, the Federal Reserve, Fedspeak, and even the European Central Bank. As we close up the last few weeks of 2022, all of these may have a long-term effect on gold.
The most recent US inflation data was unexpectedly lower, supporting the idea that the Fed is at its most hawkish. However, the CPI index’s main component continued to rise, raising worries about future sticky pricing. Meanwhile, the Fed reduced the aggressive 75-bps pace seen earlier this year and moderated the pace of tightening, lifting rates by 50 basis points last week.
However, the central bank kept emphasizing that there is still work to be done. The central bank is “far away,” according to San Francisco Fed President Mary Daly, from achieving its mission of maintaining price stability. A deeper examination showed that the market is still more dovish than the Fed anticipates for future interest rates. Future volatility risk exists even if it may not be a problem for gold in the next week.
Last but not least, the ECB’s unexpectedly hawkish attitude caught markets off guard. When central banks throughout the globe are all tightening, anti-fiat gold prices are most at risk. That is why gold has had such a bad year and will probably keep posing a threat to XAU/USD. Next week, all eyes will be on core PCE, the Fed’s favored inflation indicator. The yellow metal may rise if the conclusion is milder, but significant upward movement may not occur until the narrative’s tightening.
Gold vs. the US Dollar
TECHNICAL FORECAST FOR GOLD – SLIGHTLY BEARISH
Technically speaking, gold is exhibiting an increasing number of early reversal warning indications. Last week, a bearish Rising Wedge chart pattern was broken by the XAU/USD price. But there needed to be more follow-through. The negative RSI divergence indicates that the upward momentum has been waning. A bearish Evening Star candlestick pattern also developed on top of this.
Additional evidence of the negative might pave the way for the reversal of gains made since November. That would make the 50-day Simple Moving Average the focal point (SMA). The latter may refocus attention on the near-term upside. If not, the high point from December 13th at 1824 will be a major barrier. The June high at 1879 is revealed if that price is broken through.
Daily XAU/USD Chart
