Gold Down 3% on Week as Mixed Data Raises Questions on Next Fed Move

By Barani Krishnan

Investing.com - Gold fell almost 3% for the week as mixed data raises questions on whether the fledgling U.S. recession will deepen or the dollar will pick up steam again as the Federal Reserve weighs more outsized rate hikes.

The benchmark gold futures contract on New York’s Comex, December, settled at $1,762.90 per ounce, down $8.30, or 0.5% on Friday. For the week, December gold lost almost $53, or 2.9%.

The spot price of bullion, more closely followed than futures by some traders, was at $1,747.68 by 15:40 ET (19:40 GMT), down 0.6% on the day and 3% on the week.

“Gold is edging lower again as the dollar continues to see strong support,” said Craig Erlam, analyst at online trading platform OANDA. “The resurgence in the greenback has weighed heavily on the yellow metal which was already seeing profit-taking after reaching $1,800.”

Until last week, a four-week run-up had given both gold futures on New York’s COMEX as well as the spot price of bullion a gain of about $120, or 7% from July 21 lows of around $1,680. The yellow metal peaked at almost $1,825 on Aug. 10.

This came on the backdrop of softening inflation and other data which signaled that the Fed might be done with super-sized rate hikes, a notion that pressured the dollar lower.

Since the start of this week though, the tide has turned, with U.S. weekly jobs numbers and manufacturing and other data coming in stronger.

The dollar, gold’s contra trade, subsequently began creeping up. On Friday, the Dollar Index, which pits the U.S. currency against the euro and five other majors, also rose, far more than crude, hitting a five-week high of 108.14.

The grind lower has started for gold. The question is how much lower it could get. Surprisingly, both chart signals and views of fundamentals analysts indicate that it will not be very much lower.

This is because of the inflation dynamic that’s tied to the stronger U.S. data that has been emerging over the past week. All said and done, gold remains as a hedge against inflation for some of the most serious investors, although it has not been able to really live up to that billing since hitting record highs of above $2,100 in August 2020.

Thus, even chartists such as Sunil Kumar Dixit, who’s chief technical strategist at SKCharting.com, think gold will go to around $1,730 at most in this first round of weakness, with further breakdown below $1,700 coming only if the dollar goes rampant.

“Rejection/selling pressure from resistance areas of $1777-$1781 may push gold lower towards $1,744 and $1,729, which are 50% and 61.8% Fibonacci levels of retracement from $1,681 to $1,808,” said Dixit.

On the flip side, a rebound could happen as well if the yellow metal is deemed oversold, he said, adding:

“In some aspects, gold has reached oversold areas and is likely to show a short term rebound as stochastic readings of 13/9 on the 4-Hour chart make a positive overlap.”

“We can see prices retesting the broken support turned resistance areas of $1,768 - $1,777 and the 50-Day Exponential Moving Average of $1781.”