In his statement on recovery and the continuous impact of the pandemic on economic activity from yesterday, FED Chair Jerome Powell mostly delivered on the initial expectations. The news is now being priced in, which allowed bearish pressure to continue increasing on gold in the short term. Learn more from our latest analysis of the commodity.
Jerome Powell spoke before the U.S. Senate yesterday, expectedly commenting on the latest economic developments and the progression of the pandemic. His testimony hinted at the improving conditions, paving the way for a potential rate hike next year.
This hawkishness in his rhetoric did not bolster the demand for lower-risk securities, as can be seen on the 4H chart above. Gold continues to consolidate around the 61.8 per cent Fibonacci retracement level at 1780.92, while the underlying selling pressure continues to rise.
The price action appears to be in the process of developing a new downtrend, which commenced following a breakdown below the Bearish Pennant. The rise of the new Omicron variant, which scared investors and prompted a minor selloff on higher-risk assets, caused a sizable uptick in the price of gold.
However, the rebound was denied at the 200-day MA (in red), currently at 1808.00, which allowed for the current test of the 61.8 per cent Fibonacci. If the breakdown is successful, this could lead to a dropdown to the previous swing low at 1758.00.
What is notable about this attempted breakdown is that it was initiated after a reversal from the crossover between the 300-day MA (in purple) and the 400-day MA (in green), underscoring the very strong selling pressure.
Unsurprisingly, the highlight of Powell's testimony was his take on the very high consumer prices, as inflation topped a three-decade high recently:
"Most forecasters, including at the Fed, continue to expect that inflation will move down significantly over the next year as supply and demand imbalances abate. It is difficult to predict the persistence and effects of supply constraints, but it now appears that factors pushing inflation upward will linger well into next year."
This represents a very strong indication that the FED would likely intervene by dialling back its asset purchases next year in order to cushion the impact of the persisting supply and demand distortions globally.