Gold ready to rise but waiting for a signal

Conditions have formed in gold for an upside momentum, but investors are probably waiting for more precise signals from inflation data or the Fed.

During this year, buying in gold has intensified on declines from increasingly higher levels. In March, a strong support zone formed a double bottom, near $1685. In August and September, the reversal to the upside was already at levels near $1725. In the past month, that support has moved up another $40 to $1765.

Gold ready to rise but waiting for a signal - 1

The key moving averages in gold, the 50-day, and the 200-day, have almost merged in the last two weeks, and in December, the fast one overtook the slow one. Such a crossover is called a “golden cross”, promising more substantial buying in the short term and often indicating the start of a long-term rising trend.

But an important detail is missing for a bullish signal: the actual price must be above both moving averages. And right now, it is hovering around $1780, which is $10 below that crossover.

Since late November, the narrow trading range in gold suggests the market is preparing for a strong move as soon as the outlook becomes more evident. A gold move above $1790 and, for more certainty, above $1800 might be a necessary signal that the bulls have taken control. Globally, it could be the start of a new year-long rally with a target at $2600.

If we see a sharp move down from the current levels, it might be another capitulation for gold, laying the foundations for a horrible 2022, in which the price risks falling to $1500 or even $1300.

The US inflation data coming out later this week could move the bulls and bears. But much more concrete information for gold promises to come from next Wednesday’s Fed meeting.

Alex Kuptsikevich

Financial market professional with 16-years' experience and Senior financial analyst at FxPro. Author of daily reviews on the impact of economic events with comments regularly featured in top international and Russian media. Covers fundamental analysis, global markets, foreign exchange market, gold, oil, cryptocurrencies.

Alex Kuptsikevich is a regular contributor to both digital and print media including CNBC, Forbes, Reuters, MarketWatch, BBC and Coindesk.