Gold price subtly rebounded on Tuesday as the market priced in prospects of a hawkish Fed. This follows the recent US jobs data and subsequent Jerome Powell’s remarks. Based on both the technicals and fundamentals, the precious metal will likely be under pressure in the short term even as the bulls remain in control.
What’s driving the gold market?
As at 3rd November 2022, gold price was at $1,616.04. Notably, the precious metal rallied by about 21.15% over a span of three months. In fact, since the beginning of the year, it rose by close to 8% to a level last recorded in mid April 2022 on Thursday last week.
The rallying was largely founded on the expectation that inflation had peaked. In fact, the over 9-month high hit in the past week came after the Fed Chair acknowledged that “the disinflationary process has started”.
Granted, a strong US labor market threw the market into a state of confusion. This explains why Jerome Powell’s speech was highly anticipated.
In his speech, the Fed Chair reiterated that indeed inflation was slowing. However, he was quick to add that further interest rate hikes were needed to bring inflation to the US central bank’s target. With regards to January’s jobs report, he stated,
“We didn’t expect the January jobs report to be this strong, but it shows you why we think that this will be a process to bring down inflation that takes a significant period of time because the labor markets are extraordinarily strong”.
On the one hand, recession concerns and the observable slowing of inflation will likely continue to support gold price. However, while that means that the bulls will remain in control, the psychologically crucial zone of $2,000 per ounce will be evasive for a while longer. In fact, as investors price in the prospects of a hawkish Fed and further interest rate hikes in March, the precious metal may be under pressure in the short term.
Gold price prediction
After hitting a one-month low on Monday at 1,859.25, gold price rebounded slightly on Tuesday to 1,871.76 as at the time of writing. As seen on its daily chart, it has continued to find support along the 50-day EMA while trading below the short term 25-day EMA.
As the market digest Jerome Powell’s remarks and price in a Fed’s hawkish stance, the range between the 50-day EMA at 1,855.85 and the 25-day EMA at 1,891.05 will be worth watching in the ensuing sessions. Even the probable rebound, gold price will likely continue to find resistance at around 1,915.
On the lower side, the bulls will be keen on defending the support at 1,850. In fact, a move below this zone will invalidate this bullish thesis.