Gold Prices May Backtrack as Markets Steady, Omicron a Wildcard

GOLD PRICE OUTLOOK:

• Gold prices rise as risk aversion pulls down real interest rates
• Sentiment may stead amid news-flow lull, Omicron a wildcard
• Chart setup tilts cautiously bearish near six-month range axis

Gold prices managed gains despite a stronger US Dollar on Friday as risk aversion swept financial markets. An ominously “stagflationary” configuration of responses across key asset classes saw a sharp fall in nominal rates outpacing a more modest downshift in breakeven inflation expectations. That pushed real interest rates deeper into negative territory boosting bullion’s store-of-value appeal.

Looking ahead, a quiet start to the trading week brings little by way of scheduled event risk until November’s US CPI data hits the tape on Friday. Fed officials are in a blackout period ahead of next week’s FOMC policy meeting, so no leading commentary is on the menu. This looks to have left the door open for a risk-on correction after Friday’s bloodletting. This may see gold prices retrace a bit of recently recovered ground.

News flow surrounding the still-mysterious Omicron variant of Covid-19 remains a wildcard. The baseline seems to be that this version is perhaps more virulent but less deadly than prior iterations. Headlines credibly challenging that set of assumptions – if Omicron was revealed to be more lethal than anticipated, for example – might trigger volatility across financial markets. Gold is unlikely to be immune.

GOLD TECHNICAL ANALYSIS – TILTING BEARISH NEAR 6-MONTH RANGE MIDDLE

Gold is retesting support-turned-resistance at a rising trend line set from August lows. Extension higher sees resistance capped at 1808.16, with a daily close above that putting 1834.14 in focus. Alternatively, bearish resumption faces support anchored at 1750.78. Breaching that might expose 1717.89.

Gold price chart created using TradingView

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--- Written by Ilya Spivak, Head Strategist, APAC for DailyFX

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter