Since the Federal Reserve's interest rate meeting on November 14, 2021, when the bearish trend of accelerating the contraction mode was exhausted, gold prices have once again started a slow climb mode from $1752 per ounce. Subsequently, due to Powell's biased testimony, continuously soaring inflation data, and geopolitical risks, its hedging appeal was enhanced. In addition, as the stock market and cryptocurrencies experienced sell-offs, investors flocked to the safe haven asset gold. The gold price hit a peak of $1847.85/ounce last week, hindered by the pressure of the $2075- $1877/ounce connection at $1850/ounce, and slightly declined to close at $1834.44/ounce, closing positive for two consecutive weeks.

Technically speaking, gold prices have shown a good upward trend and are expected to continue to rise during the short-term pullback cycle of the US dollar index and US bond yields. But this week marks the first interest rate meeting of the Federal Reserve this year, and gold prices are once again facing a choice! Is it to continue the consolidation of range fluctuations, or to continue the upward climb to $1900 per ounce?

Powell's biased remarks helped to boost gold prices

Powell stated at the confirmation hearing for his second four-year term that if the Federal Reserve sees inflation lasting longer than expected, it will have to further raise interest rates over time, but did not mention the specific timing of the rate hike.

Unlike the dot chart in December 2021, which suggests the Federal Reserve will raise interest rates three times this year, Powell believes that the Fed's rate hike plan should not affect the economy or harm the job market. "We must be both humble and a bit flexible here. In the first six months of this year, we will learn a lot about the path of inflation, especially because it is related to these supply barriers

Powell's testimony suggests that although the Federal Reserve will normalize policy, a decision has not yet been made to reduce its nearly $9 trillion balance sheet. Powell pointed out that decision-makers are still discussing ways to reduce the Federal Reserve's balance sheet, and sometimes it may require two, three, or four meetings to make such decisions.

During Powell's speech, the US index and bond yields fell, while gold prices climbed upwards.

Inflation explodes again

According to data released by the US Department of Labor on January 12th, the Consumer Price Index (CPI) in the United States increased by 7% year-on-year in December, up from 6.8% in November, marking the fastest growth rate since 1982 and the third consecutive month when inflation exceeded 6%. After the release of inflation data, gold prices briefly surged to around $1830.

The Federal Reserve's flood of easing has led to a surge in inflation. The Federal Reserve has abandoned the view that inflation is temporary. The question for the future is whether raising interest rates can lead to a decline in inflation?

Stock market benefits from selling gold

Last week, the Dow and S&P 500 both recorded their third consecutive week of decline, marking their worst weekly performance since 2020. The S&P 500 index is currently down more than 8% from its record closing point. In addition, the cryptocurrency market has also been sold off

As the stock and cryptocurrency markets were sold off, funds flooded into the precious metal market. The world's largest gold ETF, SPDR GOLD TRUST, reported a significant increase in holdings of 31.37 tons last week, with holdings climbing to 1008.45 tons. For the first time since the Federal Reserve's interest rate meeting on September 23, 2021 released a signal to reduce its holdings below 1000 tons, it has climbed above 1000 tons.

The situation in Ukraine is tense

Since the end of last year, the situation in Ukraine has rapidly deteriorated. The series of security talks between Russia and the West ended in fruitlessness, exacerbating concerns about the tense situation in Ukraine.

According to Fox News on January 22nd, US officials stated that the US State Department has ordered the families of US embassy personnel in Ukraine to evacuate as early as January 24th. A US official said that next week, the US State Department is expected to encourage Americans to evacuate from Ukraine on commercial flights.

According to a report by Russian satellite news agency on January 22nd, the US Embassy in Kiev stated that the first batch of new military aid provided by the US has arrived in Ukraine, including approximately 90 tons of "lethal" military aid. On the other hand, it is reported that Russia currently deploys over 127000 soldiers in the border area between Russia and Ukraine, including over 106000 army soldiers. Russia has repeatedly stated that it will decide to mobilize its troops on its own territory and will not threaten anyone.

The tension in Ukraine has been taken into account by the price of precious metals. It is evident that gold prices have gained support from geopolitical tensions in Ukraine and the Middle East.

The Federal Reserve's decision has hit hard

The Federal Open Market Committee (FOMC) will hold a meeting from January 25th to 26th, which is the focus of investors' attention. After the Federal Reserve meeting, Federal Reserve Chairman Powell will hold a press conference.

If the Federal Reserve announces an immediate end to the process of reducing bond purchases and becomes more hawkish, it may stimulate a stronger US dollar, thereby suppressing the trend of gold prices.

The interest rate matrix released by the Federal Reserve at its December meeting is expected to raise interest rates three times this year, each by 25 basis points. However, Wall Street investment banks such as Goldman Sachs and JPMorgan Chase recently predicted that the Federal Reserve may raise interest rates four times this year.

Federal Reserve Chairman Powell recently stated that if the Fed sees inflation lasting longer than expected, it will have to further raise interest rates over time, but did not mention a specific time point for the rate hike.

The market believes that it is a mistake for the Federal Reserve to continue stimulating the economy, given that the economy has fully recovered the output losses caused by the epidemic, the unemployment rate has returned to below 4%, and inflation is at a high point in nearly 40 years

On the other hand, if the Federal Reserve's interest rate hike in 2022 falls short of market expectations, it may be beneficial for gold and silver

In addition to the Federal Reserve resolution, important US data worth noting include the Consultative Conference Consumer Confidence Index next Tuesday, the fourth quarter GDP data next Thursday, initial jobless claims and durable goods orders, and the Personal Consumer Price Index next Friday.

Market sentiment is too high, beware of gold prices rising and falling back

According to Kitco Gold Survey, 89% of Wall Street analysts understood this week, while 71% of ordinary investors believe that gold prices will rise this week. Historical experience has shown that when one side is biased towards multiple emotions, there is often a reverse trend.

However, major institutions have serious differences regarding the future trend of gold prices.

Technically, this month, it broke through the key Bollinger Belt medium track for the second time, with the weekly line standing above the 10 week moving average for two consecutive weeks, and the daily line temporarily holding above the 10 day moving average. Moreover, the upward trend of gold prices since August 9, 1683 US dollars per ounce last year, and the short-term upward trend since November 4, 1752 US dollars per ounce, remain intact, and it is expected to continue the upward trend.

On the other hand, gold prices were hindered by the downward pressure of $2075 per ounce connecting to $1877 per ounce, and fell back at $1850 per ounce. Above, there is a pressure of around $1916 per ounce connected to $1877 per ounce and $1860 per ounce, which can be said to be a lot of resistance., This week will be a crucial one.

Resistance: $1850/ounce, $1865/ounce, $1877/ounce. If breached, it is expected to reach the $1900/ounce level.

Support: $1827/ounce, $1817/ounce, $1805/ounce. If it falls below, it will retest the key support line of $1797/ounce. If it falls below, gold prices will return to the volatile range of $1850- $1750/ounce.