• RICE
    18 USD -1.75%
    74.17 USD -1.32%
    14.35 USD -0.66%
  • NG
    2.27 USD 0.27%
    256.22 USD -1.15%
    70.04 USD -2.02%
  • XAG
    23.96 USD -0.14%
  • XAU
    2010.5 USD 0.48%
  • XCU
    3.73 USD -1.34%
  • XPD
    1478 USD -0.78%
  • XPT
    1048 USD 0.64%
  • ALU
    2243.47 USD -2.23%

Is gold going to hold a crucial $1,800 level?

The fear of higher inflation negatively impacts gold, which is at a nine-week low. But futures volume data shows something else.

Gold ignores minor fundamental data

Gold successfully ignores minor fundamental data, meaning that yellow metal accepts only data from inflation and Fed monetary policy decisions. A good example is PMIs or manufacturing data, which did not end up as bad as expected. These data are not less important than others and give as they provide good insight into the economic health of the economy. But it seems that a bigger impact on the gold’s trajectory has mostly a fight against inflation

Read more: Inflation data sends markets to a red close 

After the nine weeks low, gold tries to gain some momentum and make a bounce out of the $1,800s territory. A Moodix market sentiment index shows -0.30 on a scale from -1.00 to +1.00, which means sentiment is -30% in negative territory. The fear of the next Fed’s move is thus literally visible. 

The rate hike 

The latest information about the next rate hike is worsening. Fear is growing thanks to the latest data from the hike/cut ratio where a 25 bps rate hike is currently priced in the market and there is a 20% chance of a 50 bps rate hike. Even the last comments from the Fed did not observe the higher policy. Moreover, another rate hike by 25 bps on the Fed meeting scheduled in May is priced in the markets as well.

Read more: Hawkish sentiment boosted – the fed minutes are out

The next meeting is scheduled for the 22nd of March. We have three weeks of macro data which could affect the percentage chance of higher-than-expected rate hikes. Currently, the expected number is a 25 bps rate hike. Higher than expected numbers could negatively affect markets and gold as well, and vice versa.

The volume shows a divergence 

The quite interesting situation is on the gold futures contracts data, where volume shows a month-long divergence between the price and bid/ask delta. Price has been decreasing the whole of February, but as is clearly visible, the delta, and predominantly cumulative delta, have completely opposite move. The chart shows the delta between the bid and ask on the futures volume that has been raising for more than 3 weeks in a row. 

30 minutes chart of GC (Gold Futures). Divergence delta between price and volume in February. Source: Author's analysis

30 minutes chart of GC (Gold Futures), source: author’s analysis

Final thoughts

Currently, we have a very hard chess game in front of us. Data undoubtedly shows negative economic sentiment, probability of the recession on the rise, high inflation, and a 20% chance of a double rate hike. Negative sentiment is even measured at least by mentioned Moodix sentiment index.

On the other hand, futures data show that the volume delta between the bid and ask is raising as long as the price is decreasing. Gold is at a nine-week low and we have another three weeks until the Fed meeting. Will gold look under the level of $1,800 or bounce back to the $1,850s territory where the closest resistance levels are? 

Tomas is a professional trader and money manager on foreign exchange market from 2014. His main domain are commodities. Experiences gained due this period are transformed to consul...


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