Gold trades under pressure back below $1800 as investors focus on Fed

As of 4:10 PM EST gold futures basis, the most active February 2021 Comex contract is currently fixed at $1789.80 after factoring in today’s net decline of $15.10 (-0.84%). Gold opened at $1800.20, traded to a high of $1804.60, and is currently trading $0.90 off the intraday low of $1789.

U.S. equities were dragged down today by concerns of the new Covid-19 variant “Omicron.” The Dow lost 433 points (-1.43%), the S&P 500 gave up 1.06%, and the NASDAQ composite declined by 1.17%. However, it seems that market participants who trade and invest in gold did not have the same concerns as in the U.S. equities markets.

Instead, market participants continue to focus upon the Federal Reserve’s plan to accelerate the tapering timeline of their asset purchases and implement rate hikes next year. According to the most recent information from the Federal Reserve, their likely course of action will be to implement three rate hikes in 2022 and an additional three rate hikes the following year in 2023. Although the rate hikes the Federal Reserve will implement will be subtle and small steps of 25 basis points (1/4%) these hikes would raise the Fed funds rate to 1 ¾ % by the end of 2023.

Our technical studies indicate strong resistance at $1815 per ounce. This is based upon intraday highs that occurred in mid-October, the end of November, and last Friday. On Friday, gold traded to an intraday high of $1815 and closed at the 61.8% Fibonacci retracement of the November rally. During the November rally gold traded from a low on November 3 of $1758 to a high of $1870.60 on November 16. These technical studies confirm that $1815 is the current level of strong resistance. The next level below that occurs between $1804.60 (the 61.8% retracement point) and $1800 per ounce, a key psychological level.

Silver experienced a strong decline today, giving up 1.17%, or a total of 26.3 cents which takes the most active Comex contract to $22.27. Our technical studies indicate support at $21.50. This is based upon two significant lows that occurred first on September 29 and then on December 15. We currently see major resistance at $23. This is based upon the 78% retracement from a data set that begins at the highs achieved in silver of $28.88 that occurred on May 17 of this year to the double bottom we spoke about at $21.50.

With the holiday season underway, we would expect to see light volume and the choppy market as we get closer to the beginning of the Christmas holiday season commencing. Then between Christmas and New Year’s we expect to see very light participation from major traders as they celebrate the holiday season.
 

By Gary Wagner

Contributing to kitco.com

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