Gold Fundamental Forecast – Slightly Bearish

• Gold prices left mostly flat last week despite slew of event risk
• Broader fundamental landscape likely remains bearish ahead
• XAU/USD is showing increasing technical signs of reversing

After 5 days of volatility, gold prices finished last week relatively flat as XAU/USD fell 0.25%. There was a lot to digest for the yellow metal including a US CPI report, the Federal Reserve, Fedspeak and even the European Central Bank. All of these could have a lasting impact on gold as we wrap up the last couple of weeks of 2022.

The latest US inflation report surprised lower, underscoring the peak Fed hawkishness narrative. But, the largest component of the CPI index continued higher, leaving concerns about sticky prices down the road. Meanwhile, the Fed slowed the pace of tightening, raising rates by 50-basis points last week, down from the aggressive 75-bps pace seen earlier this year.

But, the central bank continued to highlight that more work needs to be done. San Francisco Fed President Mary Daly said on Friday that the central bank is ‘far away’ from its price-stability goal. A closer look revealed that the market remains more dovish than what the Fed is projecting for interest rates ahead. While perhaps not a risk for gold in the immediate week ahead, it presents future volatility risk.

Lastly, the ECB surprised traders with a more hawkish stance than anticipated. Anti-fiat gold prices are the most vulnerable when central banks around the world are collectively tightening. That is why it has been such a dismal year for gold and will likely continue to be a threat for XAU/USD. Next week, all eyes turn to the Fed’s preferred inflation gauge, core PCE. A softer outcome may boost the yellow metal, but meaningful upside progress could be lacking until the tightening narrative changes.

Gold Versus the US Dollar

Chart Created in TradingView

Gold Technical Forecast – Slightly Bearish

From a technical perspective, gold seems to be showing more and more signs of early reversal warnings. Last week, XAU/USD broke under a bearish Rising Wedge chart formation. Follow-through was lacking though. Negative RSI divergence has been present, showing that upside momentum has been fading. On top of this, a bearish Evening Star candlestick pattern formed.

Further downside confirmation may open the door to reversing gains since November. That would place the focus on the 50-day Simple Moving Average (SMA). The latter could reinstate the near-term upside focus. Otherwise, key resistance is the December 13th high at 1824. Breaking above that price exposes the June peak at 1879.

XAU/USD Daily Chart

Chart Created in TradingView

— Written by Daniel Dubrovsky, Senior Strategist for DailyFX.com

To contact Daniel, follow him on Twitter:@ddubrovskyFX