Gold market analysis: Powell's hawkish speech led to sharp fluctuations in gold

Last week, the spot gold price closed up 25.40 US dollars or 1.44% to close at 1792.79 US dollars per ounce. The highest gold price reached 1813.73 US dollars per ounce and the lowest touched 1760.18 US dollars per ounce.



Recently, the rising threat of inflation has triggered some obvious bullish sentiment in the global gold market. The rise in U.S. bond yields may indicate that inflation expectations are becoming uncontrolled, and as economic activity begins to slow down, the Fed’s tools will be limited. The risk of stagflation continues to increase, which will benefit gold and all commodities. Inflation is currently driven by continued disruptions in global supply chains. The supply shortage may last longer than initially expected, which means that inflation will remain high. As the shortage problem has intensified, commodity and energy prices have fluctuated sharply, and the problem of inflation has been spreading. The market is more worried about inflation than the Fed's reduction in debt purchases. Moreover, the market believes that the Fed's monetary policy meeting in early November is unlikely to reduce debt purchases, but the tough remarks on the reduction of the balance sheet may have a negative impact on the price of gold and dominate gold trading in the coming week. Last Friday, Powell's hawkish speech caused gold prices to stage a "high dive". Friday was the most violent trading day for gold last week. On the same day, Fed Chairman Powell said that he expects inflation to slow next year and the Fed will begin to gradually withdraw from stimulus measures. Powell's remarks strengthened the market's expectations of the Fed's tightening policy, which has suppressed gold. The price of gold fell sharply by more than $30 in the short term. Spot gold closed at 1792.79 US dollars per ounce on Friday, up 10.07 US dollars or 0.56%, the highest intraday hit 1813.73 US dollars, the lowest touched 1,782.67 US dollars. Obviously, this fall is due to the Federal Reserve Chairman's remarks that inflation may continue to be high until next year. However, this is a double-edged sword. Inflationary pressures still existing in the market will be the fundamental factor that will support or suppress the trend of gold in the coming weeks and even months.

From a technical point of view, if the price of gold continues to strengthen and breaks the $1,800 mark, it will confirm that the recent bulls have broken the 100/200-day SMA exchange barrier. This will create conditions for further appreciation in the price of gold in the near future and push up the spot price to the next relevant resistance near $1816-18. This momentum may further challenge the key resistance levels near 1,832-34 USD. On the other hand, the $1,789-88 area now seems to restrain the short-term downside, and then the $1,783-82 area. This is followed by the support level near $1775 and the $1763-60 area. A break below this area will offset any recent positive bias. Gold/USD may subsequently become vulnerable, falling below the $1750 support level and accelerating its decline towards the September volatility low near $1723-21.

Only personal views, not representative of the views of the organization

Source: Bank of China's official website, Bank of China Guangdong Branch Wang Gang, original title: "20211025-Powell's Hawks Speech Leads Gold Fluctuations"