On Monday (February 06), after the price of gold closed down sharply last week, the price of gold maintained a weak and volatile trend at the beginning of the week. Short-term still faces continued downward pressure. Last week’s strong non-farm payrolls report increased expectations for a rate hike by the Federal Reserve. Put heavy pressure on gold prices. This week, the market focus will turn to the speech of Federal Reserve Chairman Powell at 1:40 am Beijing time on Wednesday.
Gold price daily chart trend
Gold ended January with its best start to the year in a decade, but momentum turned abruptly as February began, with prices closing sharply lower last week, snapping a six-week winning streak.
The U.S. non-farm payrolls report for January showed that the labor market created 517,000 jobs, well above expectations, while economists expected only around 193,000 jobs to be added.
Fed rate hike expectations increased after January non-agricultural data, which is not conducive to gold prices
Gold’s reaction to the shocking jobs data showed that the fate of the precious metal remains closely tied to the Fed and the dollar. Economists pointed out that if the labor market remains strong, the Federal Reserve will be forced to maintain its aggressive monetary policy for longer than expected.
Currently, the market expects the Fed to raise interest rates again in March. Markets are also pricing in a possible rate cut before the end of the year. However, those expectations may start to shift after this jobs report.
According to the latest research report from Morgan Stanley, the Federal Reserve may raise interest rates by 25 basis points at its March policy meeting after the U.S. non-farm payrolls report in January.
The U.S. investment bank had previously called for a pause in the March rate hike cycle after the Fed raised its benchmark policy rate by 25 basis points on Wednesday.The current base rate is between 4.50% and 4.75%
Morgan Stanley said that even with more unpublished data ahead of the March FOMC meeting, we don’t think there will be enough time for the data to signal to the Fed that rates have moved sufficiently into restricted territory. Morgan Stanley also raised the top federal funds rate to 4.875% from a previous estimate of 4.75%. However, it still expects the first rate cut in December 2023.
Deep growth in the gold market is expected to support gold prices
While U.S. monetary policy remains a significant headwind for gold, one thing investors learned in the last week is that there is more to the precious metal than just investment demand.
This week, the World Gold Council highlighted the growth in gold market depth, as physical demand for the precious metal rose 18% last year. Retail investors led the market in bulk buying of gold. In the second half of this year, the demand for gold from central banks is also very strong.
Central banks bought 1,136 tonnes of gold last year – the most since 1967, according to the World Gold Council. George Milling-Stanley, chief gold strategist at State Street Global Advisors, said central bank demand won’t disappear anytime soon, which will lay a solid foundation for prices.
Markets keep a close eye on speeches from Fed officials this week
All eyes this week will be on the Federal Reserve on Wednesday. Federal Reserve Chairman Powell has always wanted the market to reduce expectations of a rate cut at the end of this year, but the market has been ignoring Powell’s speech. After the release of several key economic data, the market began to expect that the Fed may not cut interest rates by the end of the year.
These data include, first of all, the new round of initial jobless claims in the United States unexpectedly fell. Then last Friday, the non-farm payrolls data was absolutely blown out. In the context of data from 1996, the probability of a blowout is less than 4%.
Although there are some anomalies in the data due to seasonal adjustments as well as annual government benchmarks. But combined with the jobless claims data, the U.S. labor market appears resilient after the most aggressive Fed in decades. Markets are pricing in about half of the rate hikes in their year-end outlook. That pushed up yields on the dollar and government bonds.
In addition to Fed Powell, there were other key Fed officials speaking out this week. For example, John Williams and Patrick Harker. After the jobs report, they will likely continue to stress the need for vigilance. This could dampen dovish expectations for gold, putting pressure on gold prices to pull back.
The technical outlook of gold
Spot gold price daily chart
Technically, the current bearish bias on gold prices still exists. After the price of gold fell below $1,900, bears dominated the market. $1900 remains an important resistance level.
As the sell-off intensifies, gold prices are still likely to continue to fall, only to a four-week low of $1,860. Then, the next target is the psychological barrier of $1850, which is also near the 50-day moving average.
If the price of gold is bullish and breaks through the key $1,900 mark. Then it is expected to rise to $1913, around the 21-day moving average. As long as the price of gold is below the 21-day moving average, the price of gold will still be in a short-term position.
Gainesville Coins precious metals analyst Everett Millman said: For gold, the path of least resistance is down. Gold prices are expected to spend more time consolidating and trading sideways. Prior to this sell-off, gold had traded between $1800 and $1900 for a very short period of time, quickly moving from $1700 to $1900. This is why gold will test many resistance levels in the $1700-$1800 range before the market reaffirms its confidence.
The immediate support for gold is $1,870 an ounce. Millman pointed out that if the $1,870 support cannot be held, gold will test $1,850, then $1,800.
At 19:50 Beijing time, the spot gold price was quoted at US$1,870 per ounce.