Technical Analysis of Gold
As of 4:00 p.m. EDT, the most actively traded June 2022 gold futures contract was trading just under $1900 at $1899.40. This represents a net decrease of $35, or 1.82 percent. Metal's spectacular selloff today did cause major chart damage, as the gold opened and closed below its simple 50-day moving average. Market analysts use the 50-day moving average to determine the short-term market mood of a stock or commodity.
Gold traded down on Friday and finished just above the 50-day moving average, which is currently locked at $1936.60. Today, gold began at $1931.90 and went down to $1891.80 before modestly recovering. As of this writing, gold is barely holding on to the psychologically significant level of $1900 per ounce.
Throughout December and January 2021, gold prices consolidated and traded within a small and defined range both above and below three significant moving averages, the 50-, 100-, and 200-day moving averages. All three moving averages were extremely close in price, with a difference of just under $10 per ounce between the shortest-term 50-day moving average and the longest-term 200-day moving average. The 50- and 100-day moving averages are now around $100 apart.
Fundamentals
This all changed in February, when two key variables shifted market sentiment from extremely positive to extremely bullish for gold. Genuine concerns about soaring inflation affected the financial scene in early February. In response to rising inflation, market participants began bidding up the price of safe-haven assets such as gold. The Labor Department's December 2021 CPI (Consumer Price Index) inflation data showed a year-over-year increase of 7%, 7.5 percent in January, and 7.9 percent in February.
At the moment, inflationary pressures are increasing, with the latest CPI data for March revealing that inflation is currently at 8.5 percent year over year, with food, energy, and housing expenses continuing to be the key commodities and services seeing price rises.
Second, on February 24, Russia began a massive invasion of Ukraine's sovereign state. Prior to February 24, Russia had stockpiled over 180,000 troops along its Ukrainian border. On the morning of the 24th, Russia moved forces into Ukraine from three fronts. Gold rose from January lows of $1779 to only $10 below the record high of $2088 as a result of these two factors. Gold prices reached their highest level this year on March 8, when they touched $2078 per ounce. Ukraine's invasion has escalated into a serious conflict between the two countries.
In the first week of March, market players began bidding down gold prices in expectation of the Federal Reserve's first interest rate hike since 2020, when the fed funds rate was cut to near zero. On March 17, the Federal Reserve unanimously voted to increase interest rates by 14%. The Federal Reserve's new monetary policy has become highly aggressive, with rate hikes expected at each of the following FOMC sessions this year. Additionally, there is a good likelihood that two of the remaining rate hikes will be 12 percent apiece.
While the conflict between Russia and Ukraine continues to deteriorate, market participants in the United States have shifted their focus to rising yields on US debt instruments such as bonds and Treasuries, dimming gold's appeal as a non-interest bearing commodity.
Our technical analysis indicates that gold's current support begins at $1885 per ounce, with strong resistance at the 100-day moving average, which is currently anchored at $1871.50.
Although gold prices are currently below their 50-day moving average, indicating that short-term market sentiment has switched from bullish to bearish, market technicians utilize the 200-day moving average to determine a stock's or commodity's long-term market mood. As long as gold prices continue above their 100- and 200-day moving averages, both short- and long-term market sentiment is bullish.
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