Gold Prices Drop on Soft Consumer Spending Report

Gold prices continued to drop on Friday, notching up its third consecutive day of losses in the wake of the Fed meeting. The dollar whipsawed following softer than expected consumer spending data. The hawkish tone set by Fed Chair Jerome Powell continued to flatten the yield curve as 2-year yields fell, but 10-year yields declined even more than the 2-year yield. The flattening of the yield curve has weighed on gold prices.

Technical Analysis

Gold prices dropped on Friday, Support is seen near an upward sloping trend line seen near 1,769.  A break of this support level would lead to a test of the December lows at 1,753. Resistance is seen near the 50-day moving average at 1,802. The 50-day moving average crossed below the 200-day moving average. This moving average crossover is known as the “Death Cross” and shows that a downtrend is in place. Short-term momentum has turned negative as the fast stochastic generated a crossover sell signal. Medium-term momentum is negative as the MACD (moving average convergence divergence) index has generated a crossover sell signal. This situation occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses below the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram prints in negative territory with a downward sloping trajectory pointing to lower prices.

Consumer Spending Dips in December

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, dropped 0.6% in December after gaining 0.4% in November. The decline was in line with economists’ expectations. Spending on goods fell 2.6%, led by automobiles. The decline came despite increased labor costs as wage earnings made more money. Labor costs surged 4.0% on a year-on-year basis, the most significant rise since the fourth quarter of 2001.