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Dollar weakness, dovish Fed speak, and Russian – Ukraine tensions support gold

Commentaries & Views

Gold futures basis the most active April 2022 Comex contract had modest gains today. After factoring in a net gain of $4.80 (+ 0.27%) April gold is currently fixed at $1801.20. Multiple factors were responsible for today’s reasonable gains. The dollar continued to drop from recent highs, and is currently fixed at 96.26.

Fed members lack clarity as to rate hikes following liftoff in March

Since last week’s FOMC meeting the Federal Reserve has softened its tone in regards to rate hikes following anticipated lift-off, or interest rate normalization in March. Simply put, the Federal Reserve is lacking clarity in regards to their updated monetary policy which they announced last week.

According to Reuters,” Federal Reserve policymakers say they'll raise interest rates in March but spoke cautiously on Monday about what might follow, signaling a desire to keep options open in the face of an uncertain outlook for inflation and a pandemic still ongoing.”

Mary Daly president and CEO of the Federal Reserve Bank of San Francisco spoke via telephone to Reuters saying, “We definitely are poised for a March increase. But after that, I want to see what the data brings us ... let's get through Omicron, let's look at this and let's see."

Tom Barkin president and CEO of the Federal Reserve Bank of Richmond told CNBC, “I'd like us to be better positioned. Better positioned is somewhere closer to neutral, certainly, than we are now and I think the pace of that just depends on the pace of inflation.”

Chairman Powell maintained his current doctrine saying that’s U.S. Central Bankers including himself were “of a mind” to raise interest rates at their next FOMC meeting (March 15 – 16). The knowledge that this was their first step to begin to pare back support for the economy.

On the Russian front

Tensions have not abated between Ukraine and Russia. Today Ukraine announced that it intends to increase its armed forces as many European leaders have pledged to support and back Ukraine in their current impasse with Russia. In his first direct public comments in six weeks, Russian President Vladimir Putin spoke at a news conference today in which he laid out a potential scenario suggesting if Ukraine was admitted to NATO, they could attempt to recapture Crimea Peninsula. "Let's imagine Ukraine is a NATO member and starts these military operations. Are we supposed to go to war with the NATO bloc? Has anyone given that any thought? Apparently not,”

While all of the events mentioned above were components of today’s modest gains in gold it will be the release of the U.S. Labor Department’s nonfarm payroll jobs report on Friday that could have the deepest effect on prices moving forward.

Technical outlook

Yesterday we detailed the identification of a compression triangle which is the result of continued lower highs from June 2021 as well as higher lows that began in August. Gold continues to trade with consecutive higher lows and consecutive lower highs. Based on the work of R.N Elliot we can label recent price action as a contracting or symmetrical (top declining, bottom rising) compression triangle.

Based upon this model which is typically composed of five waves with the concluding fifth wave breaking above the upper resistance trendline, which he has labeled “thrust” once the price breaks and closes above resistance. Currently, our studies indicate that that would occur if gold breaks above $1838, with the first level of strong resistance occurring at $1851.

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Wishing you as always, good trading,

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