Author: Mr. Amar – Technical Analyst

There is no doubt: the price of gold exceeded our expectations in the first quarter of 2022. Our reasoning for not being bullish on gold was and is well-founded: central banks, including the Federal Reserve, have begun to wind down the pandemic stimulus effort, with rate hike cycles just beginning. The price of gold was slightly below the US dollar. The dollar hit its highest level in almost two years as measured by the DXY Index against a basket of other currencies. 2.55%, while the two years returned to 2.56% for the first time since March 2019. At least in the short term, a powerful catalyst came that exceeded interest expectations: the Russian invasion of Ukraine. Inflation expectations rose again amid the turmoil in global financial markets and the turmoil in commodity supply chains.

Meanwhile, Fed officials began the process of policy normalization by raising rates by 25-basis points to 0.25%-0.50% at the March meeting, and the minutes of that meeting will be released early Thursday morning. The FOMC does not beat around the bush in its policy guidance, and Chairman Powell also indicated that more information about QT’s plans will be provided in the minutes. An official QT announcement is expected at the May FOMC meeting. Gold, like other precious metals, has no dividends, yields, or coupons, so rising US real yields remain problematic. In other words, when other assets offer better risk-adjusted returns or, more importantly, offer tangible cash flows when inflationary pressures are high, assets that don’t produce significant returns often fall out of favour.

Technically, there is a possibility for a double-bottom chart pattern forming now for the price to reverse and attracted to the neckline between $1980 and $2000. However, the sideways consolidation has played out to the point that there appears to be a bias to the downside for the near term where gold is being resisted by a 61.8% Fibo currently.