Abstract On Thursday (February 16) in the early Asian market, spot gold was hovering around $1,841 per ounce after yesterday’s sharp drop.Surprisingly strong U.S. economic data strengthened the possibility of further rate hikes by the Federal Reserve and sent the dollar higher, sending yellow metalsgold pricePrices fell sharply on Wednesday and hit their lowest level since early January.
In early Asian trading on Thursday (February 16), spot gold hovered around $1,841 an ounce after yesterday’s sharp drop. Gold prices tumbled on Wednesday, hitting their lowest since early January, on unexpectedly strong U.S. economic data that reinforced the likelihood of further rate hikes by the Federal Reserve and drove the dollar higher.
Spot gold closed at US$1,835.77 per ounce on Wednesday, down US$18.38 or 0.99%, with the intraday highest and lowest at US$1,830.26 per ounce.
Gold prices retreated to multi-week lows below $1,850 an ounce. Stronger-than-expected U.S. CPI data supported investors’ hawkish bets on Fed policy.
Gold sellers have found a strong foothold after two consecutive closes below the key 50-day moving average, currently at $1,860 an ounce. After falling below the downtrend support at $1,838/oz, gold prices may further challenge the horizontal trend support line from the January 5 low at $1,825/oz. The 14-day relative strength index (RSI) fell below the 50.00 level, suggesting more downside for gold prices.
The latest U.S. CPI data may still make the Fed believe that it must raise interest rates more aggressively and fight inflation, putting pressure on gold prices. Gold is extremely sensitive to changes in U.S. interest rates because gold itself does not bear interest. In an environment of rising interest rates, the opportunity cost of holding gold becomes higher.
The fundamental backdrop appears to favor traders who are bearish on gold, suggesting that the path of least resistance for gold prices is to the downside.
From a technical point of view, gold prices fell below the 50-day simple moving average (SMA), which adds credibility to the bearish outlook for gold and supports the prospect of further declines in gold prices. Moreover, the daily chart shows that oscillators are in bearish territory, but far from oversold territory. As such, a subsequent drop towards short-term support at $1830/oz, with further declines to the $1818-1817/oz region and the $1800/oz round-figure mark, looks likely.
If inflation accelerates again and we return to a more rapid rate hike environment, gold andsilverwill be hit. Gold had already been knocked down after the U.S. released a strong January non-farm payrolls report earlier this month, eclipsed even more by hawkish comments from Fed officials.
Gold prices could fall back to $1,800 an ounce next. Gold prices plunged to a fresh five-week low of $1,831 an ounce on Wednesday, extending strong selling interest since a 10-month high of $1,960 an ounce. The RSI is sliding into the oversold region with strong momentum, and the MACD indicator is losing ground below the zero axis. Among trend indicators, the 20-period SMA and 50-period SMA are also trending lower.
Further declines in gold prices may meet support near $1,825 an ounce, which was the low on January 15. Gold could even fall to a low of $1,797 an ounce in late December, which could grab traders’ attention then. As long as trading is below the 20-period SMA and the 50-period SMA, the medium-term situation for gold continues to be bearish.
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