Price of Gold Fundamental Daily Forecast – Two-Day Rally Comes to Screeching Halt on Late Dollar Strength

James Hyerczyk
Published: Dec 17, 2021, 21:44 UTC

Gold prices retreated as an intraday reversal by the U.S. Dollar was strong enough to recoup all of yesterday's losses.

Comex Gold

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Gold futures are trading at their low of the session after giving back more than $18.00 worth of earlier gains. The rally fell short of a key retracement area at $1817.50 to $1832.70, stopping at $1815.70.

The sell-off wasn’t totally unexpected. After all, the Fed was hawkish on Wednesday and even added an extra rate hike in 2022 to fight inflation. We called the move a “sell the rumor, buy the fact” rally since we didn’t see a compelling reason for the rally other than the Fed delivered nearly everything they had suggested before the policy meeting.

At 21:06 GMT, February Comex gold futures are trading $1798.30, up $0.10 or +0.10%. The high of the session is $1815.70, the low of the session is $1796.50. The SPDR Gold Shares ETF (GLD) settled at $167.81, down $0.35 or -0.21%.

Don’t Give Up on the Long Side Yet

The volatile price action on Friday is probably discouraging to the bulls, but there is still hope. It all depends on how traders react to a pullback into $1784.40 to $1777.00.

The first rally following a prolonged sell-off in terms of price and time, in this case $128.90 in 20 trading days, is usually fueled by short-covering. If the market has further upside potential then new buyers are likely to come in on a test of $1784.40 to $1777.00.

No one likes to chase markets higher especially when the bullish fundamentals are scarce, but they do like to buy dips. But there is risk, a sustained move under $1777.00 will indicate the sellers have regained control.

Can’t Shake the Rising Dollar’s Negative Influence

The dollar giveth and the dollar taketh away.

The earlier rally in gold was supported by a weaker U.S. Dollar. But later in the session, the dollar rose as traders dumped riskier currencies amid talk of interest rate hikes by central bankers and safe-haven buying fueled by concerns about the spread of Omicron cases.

The rally by the dollar was strong enough to recoup all of the value it had lost on Thursday following a series of central bank policy statements.

Helping to strengthen the greenback and pressure gold prices were hawkish comments from Federal Reserve Governor Chris Waller and New York Fed President John Williams.

Waller said an interest rate increase will likely be warranted “shortly after” the Fed ends its bond purchases in March.

Earlier, New York Fed President John Williams, told CNBC that the Fed will gain “optionality” to raise interest rates in 2022 by ending bond purchases by March.

Short-Term Outlook

So what can we garner from Friday’s volatility? The Fed policy statement is history and traders have moved on to how fast will it take central bankers’ will reduce stimulus and how soon they will begin raising rates. We’ll probably get those answers by watching Treasury yields and the U.S. Dollar.

Besides the direction of Treasury yields, traders should also be monitoring the direction of the U.S. Dollar. The dollar should rise if Treasury yields move up. Additionally, it could also be supported by safe-haven buying if Omicron becomes a major problem for commodity-linked currencies like the Australian, New Zealand and Canadian Dollars.

For a look at all of today’s economic events, check out our economic calendar.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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