GOLD PRICE OUTLOOK:

• Gold prices unable to capitalize as stocks, US dollar retrace post-FOMC moves
• Fed policy outlook still hawkish to keep interest rates up, bullion pegged
• Weak U.S. Payroll Growth and High Wage Inflation May Lower Gold Prices

Participation in the price of gold was conspicuously absent this week as concerns about the Fed’s hawkish intentions eased across financial markets. Stock markets rallied, with the flagship S&P 500 index erasing more than half of the decline from January’s peak. The US dollar retreated.

The yellow metal was little changed in the meantime, consolidating in a choppy range near the $1800/oz figure. This keeps it near the middle of the larger side centered on the $1750-1850 area. It has mostly contained price action since mid-2021.

The status quo likely reflects an equally stubborn performance on the rates front. The benchmark 10-year US Treasury yield echoed gold’s sideways drift, hovering at 2-year highs just below 1.9%. The companion equilibrium rate – a measure of embedded inflation expectations – also slowed.

Taken together, this kept real interest rates (nominal rates minus expected inflation) relatively stable near 18-month highs, where they arrived after rising the most in two years in January thanks to combative rhetoric. from the Fed.

The prospect of even higher real rates as the US central bank tightens undermines gold’s appeal as an alternative store of value, given that it yields nothing at all. Since this week’s pick-up in risk appetite didn’t appear to be accompanied by a dovish shift in the Fed’s outlook, gold remained pegged.

GOLD MAY SUFFER FROM SOFT US SALARY DATA IF SALARY INFLATION HOLDS TIME

The spotlight now turns to January’s US payrolls data. The economy is expected to have added a measly 125,000 jobs last month. Wage inflation, however, is expected to climb to 5.2% year-on-year, underscoring that weak hiring reflects labor shortages rather than weak demand. Job vacancies are tellingly holding at record highs.

Such a report seems likely to embolden Fed hawks. Indeed, Chairman Powell emphasized that rising rates in the current environment are supportive of the central bank’s inflation and employment targets following last week’s policy meeting. This implies that the stabilization of wage expectations is considered essential to stimulate hiring.

Gold is likely to suffer in this scenario, as the non-interest-bearing metal loses even more favor as actual and expected yields rise. The US dollar is also likely to rebound against such a backdrop, dampening demand for the everlasting fiat currency sheet.

GOLD TECHNICAL ANALYSIS

Gold prices sit at the top of an uptrend support, guiding them higher since August 2021. Immediate resistance lies at 1813.40, with a break above that exposing the area 1834.14-49.64.The November swing high at 1877.15 follows next. A daily close below 1778.50 could confirm a bearish reversal, targeting 1750.78 next.

Gold price chart created using TradingView

GOLD TRADE RESOURCES

— Written by Ilya Spivak, Chief Strategist, APAC for DailyFX

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter