"Gold Loses Shine: Inflation Report to Determine Future Trend"
Gold has faced three consecutive weeks of losses after experiencing a strong start to the year in January. The fall in gold prices is attributed to a robust employment report in the US, which showed job gains of 517,000 in January, and Fed Chair Jerome Powell's hawkish comments on interest rates. Powell confirmed the markets' concerns that if the US economy continues to surprise on the upside, the central bank would be forced to raise rates higher than anticipated.
The market is now gearing up for a crucial macro release next week, the US inflation report, which could provide the next big catalyst for gold. Market consensus predicts that inflation will slow to 6.2% in January, however, even if the report supports this prediction, the Fed is not expected to take its foot off the gas yet. Analysts at Capital Economics predict that inflation will fall by more than the consensus, which should provide a lift to commodity prices and allay fears of a more hawkish Fed and higher US interest rates.
The recent central bank gold buying has supported the market, and the World Gold Council reported a record high in 2022 with 1,136 tonnes purchased. TD Securities senior commodity strategist Daniel Ghali pointed out that a large cohort of investors still sees gold as overvalued, but it is unclear who would be willing to sell based on the flow perspective. The participants that have driven the gold rally above $1,800 have been central banks and short-covering, and if that trend continues, Ghali feels more comfortable with gold holding above $1,800.
Gold's potential trading range is wide, with strong support currently at $1,800 an ounce and resistance at $1,900. RJO Futures senior market strategist Frank Cholly is looking at the $1,850-$1,855 range, stating that the moving averages are important and there is market equilibrium between the 50-day and 200-day marks. Other data to keep an eye on include US retail sales, the Producer Price Index, and industrial production. ING chief international economist James Knightley predicts that January activity data will be strong, with a stark contrast between the weather in mid-late December and a very mild January, leading to delayed consumption and higher spending.