The fundamental and technical analysis of precious metals is at odds with each other. If you don’t look at a chart and just consider what gold is ie. a store of value, a hedge against fear, industrial metal, or jewelry, then you’d be expecting to see the current economic climate conducive to higher prices in precious metals. The gold/US dollar relationship is working against the yellow metal though as the greenback is supported and therefore, we’re stuck in a wide range.
Gold Technical Analysis
Despite higher US CPI expectations, the recent weakness in the dollar is keeping gold rallying as its store of value comes into play, and so far, the easing geopolitical tensions as leaders sit around the table, are not weighing on price.
As the US Federal Reserve (Fed) has turned more hawkish as policy shifts towards taming the rising inflation, and market predictions are for several rate hikes this year, starting in March. In 2022 the trade balance, shrinking fiscal deficit, and rising yields are set to keep the USD strong, which will add further pressure on the price of precious metals. Meanwhile, investors saw a decrease in net long positions across COMEX gold by 55,160 lots which marked the biggest decline since August 2021. I am expecting Gold to give up the $1800 /oz by the end of 2022 due to inflation and the inversion of Gold to real rates.
Silver is following gold higher, though it is also being bolstered by rising industrial metal prices, including aluminum, which hit a high for the year this week. In general, silver has been more volatile than gold in recent months, with a wide range of price swings occurring
The physical demand is expected to improve this year, with continued growth in solar energy and a recovery in global automotive production. However, rising interest rates will undermine silver prices just like in gold.
The lack of direction in the higher time frames is problematic for trend-following strategies. Which leaves either mean reversion or short-term intraday trading.
Zooming into an hourly chart for gold, the current price zone between $1825 to $1843 is where I am looking for the bears to really step in. Towards the end of January, the market structure shifted to the downside but there is a chance that $1780 was the target for that shift in direction. If we were to go short the risk would be placed above the $1853 swing high. With that in mind, I am keen to get into a sell position as close to that as possible, so $1842 would be ideal. A break higher than the high from 25th January and $1880 becomes my next target for the upside.
If gold does break lower after the US CPI data today, anyone shorting silver will have the $22 and $21.40 double bottoms as targets as there are very likely a lot of buys stops underneath.