Gold futures settled higher to extend gains for the third consecutive session, even as the dollar held steady against other currencies. This is amid expectations that the Federal Reserve is likely to tighten monetary policy at an accelerated pace to tackle inflation. The price of gold recovered to the resistance level of 1829 dollars for an ounce. Overall, US inflation data, due on Thursday, may help determine the pace of Fed policy tightening. Economists expect consumer price inflation to rise to 7.3% on an annual basis in January from 7% in December. The US dollar, and therefore the price of gold, may be affected by it.
The odds of a 50 basis point increase in the US interest rate at the FOMC's March meeting rose to 30 percent, according to the CME FedWatch Tool.
On the economic news front, a report from the Commerce Department showed that the US trade deficit widened modestly in December. The report said the US trade deficit rose to $80.7 billion in December from $79.3 billion in November. Economists had expected the trade deficit to widen to $83.0 billion from originally $80.2 billion in the previous month. The widest deficit came with the value of imports rising 1.6% to $308.9 billion, while the value of exports jumped 1.5% to $228.1 billion.
US stocks turned higher in the afternoon trading session on Wall Street on Tuesday after a directionless morning as investors continue to struggle to predict how well the US economy will survive the current wave of inflation as well as the Federal Reserve's medicine to treat it, by raising interest rates. By performance, the S&P 500 rose 0.8%, the Dow Jones Industrial Average rose 368 points, or 1.1%, to 35,457 points, and the Nasdaq rose 1.1%.
Shares of small US companies outperformed the general market in a possible sign that investors are optimistic about economic growth. Accordingly, the Russell 2000 index rose by 1.3%. Bond yields rose. The yield on the 10-year Treasury rose to 1.95%, the highest level since before the pandemic began. The yield, which is used to set interest rates on mortgages and many other types of loans, was trading at 1.91% late Monday.
The largely silent trading so far this week has been followed by weeks of volatility in the major indices. Rising inflation and the Fed's plan to raise interest rates to fight it were a major concern for investors. Any price increase would represent a surprising turnaround from most of the past two years, when ultra-low prices helped drive up prices for everything from stocks to cryptocurrencies.
According to the technical analysis of gold: The price of gold is moving steadily towards the rising levels that we expected. It was mentioned in the recent technical analyses of the yellow metal based on the stability of the gold price above the psychological resistance of 1800 dollars an ounce. It has already reached the tops of 1818 and 1827, and now we are on track with the third expected resistance of 1845 dollars. This may occur in the event that the US inflation numbers come in much less than what was expected because it may shake confidence in the date of raising the US interest rate.
On the downside, there will be no real trend reversal without bears moving in the price of gold to the support level of $1,775 an ounce.
