Gold is struggling to stay above $1,800.00 as markets bet on a hawkish Fed

2023-03-09 15:13:16

In early trading hour of the European market, spot gold prices remained vulnerable above $1,810.00. Markets keep betting that the Fed will raise interest rates. Upside in gold prices appears to be headed. The strong change in U.S. ADP employment numbers points to strength in consumer spending and employment in January. More than just a temporary shock to the currently falling consumer price index (CPI), the precious metal is expected to resume its downward journey.

The February CPI annual rate released by the National Bureau of Statistics of China was 1.0%, and the expected value was 1.9%. The PPI annual rate in February was -1.4%, and the expected value was -1.3%. China's consumer price index fell in February, pointing to an extremely slow economic recovery, and investors will have to be patient for a long time to discover a recovery in China's reopening. The market originally expected that the Chinese economy would pick up quickly after the withdrawal of the lockdown measures. The economic data, however, is not the case. The annualized producer price index (PPI) is already showing deflation, pointing to subdued household demand.

S&P 500 futures pared small gains recorded on Wednesday. With China's consumer price index and producer price index pointing to deflation in China, the market's risk-off sentiment has further heated up. The U.S. dollar index (DXY) continues to consolidate above 105.50 as investors await U.S. non-farm payrolls (NFP) data for fresh cues. Meanwhile, the 10-year U.S. Treasury note has rebounded above 3.98%.

Less than five weeks after the Fed slowed its pace of rate hikes, Fed Chairman Jerome Powell warned on Tuesday that the pace of rate hikes may need to pick up again.

Federal Reserve Chairman Powell told the Senate Banking Committee: "The latest economic data is stronger than expected, suggesting that the final level of interest rates may be higher than previously expected. If the overall data shows that a faster tightening rate is necessary, we will be ready to increase the pace of interest rate hikes."

In the face of further interest rate hikes from the Federal Reserve on the horizon, the precious metal still lacks a driver that could turn investor confidence positive. Powell's testimony was not entirely surprising to those who follow the impact of the Fed and interest rates. With the possibility of a shift to a 50 basis point hike in March rising, future rate hikes could be more aggressive and prolonged. This has put pressure on gold prices.

Next, the US will release the February non-farm payrolls report on Friday, followed by the consumer price index next week. The U.S. non-farm payrolls data for February is expected to fall to 203,000 from the previous value of 514,000. The 203k figure isn't too bad, but looks worthless compared to January's 514k nonfarm payrolls. Investors may also be aware that 514,000 is an outlier in the past seven months.

In addition, the U.S. unemployment rate is expected to remain at around 3.4%, a multi-decade low. The annual rate of average hourly earnings is expected to climb to 4.8%. Rising U.S. household income is expected to boost consumer spending. Federal Reserve Chairman Jerome Powell has confirmed that interest rates will be raised to bring down stubbornly high inflation.

Spot Gold Technical Analysis

The hourly chart shows that the price of gold is within an inverted flag pattern, which is a trend pattern that supports further declines in the gold price outlook.

This technical pattern suggests that gold prices will be in a long-term consolidation, followed by a downside breakout.

Usually, the technical form is in order, which means that the exchange rate is in the process of position adjustment, and short sellers tend to intervene in transactions after the bearish tendency is established.

The 30-period exponential moving average (EMA) near $1,817.24 acts as a strong resistance.

Further resistance is around the 10-day moving average of 1827.12.

Second, the next resistance is around the 21-day moving average of 1835.38.

For further strong resistance, refer to the position near the middle rail of the Bollinger line at 1843.62, and then the resistance at the 1850 mark. The resistance of the 55-day moving average is currently around 1863.42. If this resistance can be broken, it will increase the bullish signal for the market outlook.

Also, the relative strength indicator (14) is hovering in the 40.00-60.00 range. Downside momentum will be triggered if the relative strength indicator (14) breaks below the bearish range of 20.00-40.00.

The initial support refers to the support near the 100-day moving average of 1804.37, and the support of the nearly two-month low hit last week is also near this position.

Then there is support at the 1800 mark.

If this support is lost, the market outlook may fall further towards the 200-day moving average near 1775.15.

This will be a strong support and there is a possibility of turning higher again from this level.

A close below $1775 would signal further weakness in a wider range to test the 'neckline' of the September/November 2022 bottom at $1729.

Gold price 4 hours chart


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