16 décembre 2021

Analyse technique

Gold remains silent as inflation surges ahead

Safe-haven assets such as gold are highly sought-after during times of inflation as they tend to hold their value much better compared to currencies, which will depreciate as a direct result of higher prices caused by rising inflation.

However, gold’s price on the global stage remains surprisingly unaffected by the market uncertainty this year – continuing to move in a very tight range between $1,765 and $1,786 per troy ounce. 

Today we’ll look at the different factors affecting the yellow metal trend, as well as what the technical picture has to say. 

Inflation continues to rise

Last month, we were shocked by roaring inflation data, which came in at a staggering 6.2% – the largest annualized increase since the 80s. This was deemed a very high figure, especially for the US. And the latest Consumer Price Index (CPI) data, released on 10 December by the US Bureau of Labor Statistics showed that inflation is still growing at an alarming pace and currently sitting at 6.8% – a two decade high.

US Consumer Price Index Growth
US Consumer Price Index Growth

Omicron vs. inflation

Omicron has also been on the rise in many countries around the world, and particularly in the US where the data shows the number of new cases hit more than 100,000 to 200,000 per day. This number tallies to a total of around 50 million cases in the US alone.

US daily COVID-19 cases
US daily COVID-19 cases

This rise is expected to halt entire sectors within the US economy as employment and economic growth is heavily at risk. And this poses a threat to the current recovery plan. In short, the recovery may not be as smooth as initially thought and more problems may arise from the potential disruption.

Inflation and supply-side shocks

Another side effect of the new Omicron outbreak is supply chain disruption. This disruption is highly likely to negatively affect both production and distribution. In terms of production, the possibility of utilizing only half of the capacity will be much higher if this variant is proven to be more dangerous than previous ones. This hasn’t been the case so far, although it appears to be highly contagious. This can result in the slowing down of production, which may translate to increased production costs.

Containers piling up in harbors across the US is also another issue, which is caused by truck drivers who chose to quit amid bad working conditions. This phenomenon has caused the piling up of containers across the US. Not only that, but many warehouses in the US are currently empty due to the lack of deliveries.

This domino effect has triggered higher price rises and many unfulfilled orders. What’s even worse is that many pre-orders are also allegedly cancelled as longer delivery times are expected to persist well beyond the holiday season.

Gold: technical view

Gold has been considered the leading inflation hedge for many decades, but in 2021, it seems that this is not the case anymore. At the time of writing, the price of gold surprisingly dipped by 6.68% even with the inflation rate hitting 6.8%. This underperformance is quite contradictory to what market participants would have expected in the current inflationary climate.

Gold daily chart
Gold daily chart

The technical perspective shows that the price of gold has plunged quite a lot compared to its high back in November where it topped at $1,877 per troy ounce. Recently, market participants seem to be waiting for something significant to happen, which obviously caused the price to move within a very narrow range between $1,765 – $1,790.

Gold daily chart
Gold daily chart

This opens up the possibility for the price to form what we call a Rectangle pattern, which can potentially lead to two different scenarios. Firstly, if the price breaks out the upper line, then the next price target could be $1,805. However, if the price breaks under $1,765, then the target would be at $1,750. 

One thing to bear in mind is the confirmation signal would be if the price closes above the range or below the range. As always, ensure that you have a risk management strategy in place to avoid excess downside risk.

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