Source: PaxForex Premium Analytics Portal, Fundamental Insight
2021 comes to an end, but the market turbulence over the past month may continue with a rocky start in January. The omicron mutation of Covid-19 could cause minor ripples across the global economy, sufficient to extend bottlenecks in the supply chain. It will keep inflationary pressures elevated as economic output continues to cool. The holiday shopping season remained strong despite headwinds, but the consumer approaches stress levels which will force a gradual slowdown in spending activity.
Interest rates are likely to increase faster than expected amid the ongoing rise in inflation globally, as central banks remain behind the curve. Given the debt-fueled economy, especially in the US, interest rate hikes are unlikely to move the US Dollar higher, canceling and negatives on the gold price, quoted in US Dollars. Gold and the US Dollar often display an inverse relationship, moving in opposite directions. The outlook for the US Dollar for 2022 remains bearish, providing another bullish catalyst for gold.
The following two weeks could witness volatile trading on higher volume as portfolio managers adjust positions before the fiscal year closes and rebalance holdings to start 2022. Stagflation could become a risk as 2022 unfolds, strengthening conditions for gold to test the 2,000 level once again. Traders should pay close attention to inflation, PMI, and regional economic reports over the next few months, which may confirm a slowing economy and higher inflation.
The forecast for gold remains bullish after the price action recovered from a false breakdown below its Ichimoku Kinko Hyo Cloud. Traders should monitor the bearish crossover between the Senkou Span A and the Senkou Span B, which could reverse in the following few sessions. The Tenkan-sen is drifting higher with the Kijun-sen descending, suggesting a rise in volatility ahead. After the CCI moved into extreme overbought territory, a breakdown below 100 is likely, followed by a recovery and a higher high. Can bulls extend the gains in gold and drive this precious metal into its horizontal resistance area? Subscribe to the PaxForex Daily Fundamental Analysis and earn over 5,000 pips per month.
Should price action for XAU/USD remain inside the or breakout above the 1,808.00 to 1,822.65 zone, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Long Position
- Entry Level: Long Position @ 1,815.00
- Take Profit Zone: 1,865.50 – 1,877.00
- Stop Loss Level: 1,799.00
Should price action for XAU/USD breakdown below 1,808.00, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Short Position
- Entry Level: Short Position @ 1,799.00
- Take Profit Zone: 1,752.90 – 1,773.20
- Stop Loss Level: 1,808.00
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