By Barani Krishnan 

Investing.com – Gold is holding steady at the high $1700s, despite increasing threats of an increase in U.S. rates. 

Jerome Powell, longtime Fed boss and dovish man Jerome Powell is expected to make some of his most hawkish economic assessments yet in the next few days. One wonders what the future holds for yellow metal. 

At Friday’s settlement, U.S. gold futures’ most active contract, , was up $8.10, or 0.5%, at $1,784.80 an ounce. It rose 0.1% for the week.

Gold is almost always affected by news of rate increases. Bullion traders are focusing on the U.S. inflation story this time, which allows gold to continue its role of a hedge. However, strong Fed actions to correct the situation may still prove to be negative for the yellow-colored metal.

CPI (the U.S.) rose 6.8% in November and is now growing at the same pace as October.

“Gold is slowly getting its mojo back after a hot inflation report mostly matched estimates,” said Ed Moya of online trading platform OANDA. “A lot of the inflation is stickier than anyone wants and that should keep gold’s medium- and- long-term outlooks bullish.”

Moya cautioned, however that panic selling of gold could be caused by an accelerated rate hike cycle. However, there seems to be high probability that the Fed will do that right now.

“Gold just needs to survive a firm consensus on how many rate hikes the Fed will start off with next year,” he said. “Gold’s recent trading range of $1,760 and $1,800 might continue to hold up leading into next week’s FOMC decision.”

Gold’s pendulum will, of course, be decided by the swings in U.S. Treasuries and the dollar. 

The benchmark peaked at 1.53% for the just-ended week from last week’s 1.34% low, moving to the drumbeat of an impending rate hike.

Surprisingly, after Friday’s reading on consumer prices, the index was flattened in line to expectations.

“I would describe the CPI readings as correct on expectations, but the Forex market had positioned itself for a higher reading,” Greg Anderson of BMO Capital Markets’ global head foreign exchange strategy was quoted by Reuters.

Anderson said it was normal for forex players to scale back positions toward the year-end and Friday’s retreat in the dollar was “probably a prelude to that”. 

“The FX market has been extremely long U.S. dollars for several months, so with this number coming in benign we’re almost out of events that could push the dollar materially higher before  year-end.”

That leaves the Tuesday-Wednesday Federal Open Market Committee meeting of the Fed and Powell’s press conference thereafter as the final dollar/gold catalysts of the year.

Expectations are heavy that Powell will side this time with colleagues at the central bank who want to hurry along the taper of the Fed’s “forever-running” stimulus by possibly cutting $30 billion a month instead of the previously-stated $15 billion, so that the whole thing can be wrapped up in a little over three months, and the first pandemic-era rate hike can be held by April.

It’s not only a CPI reading at an all-time high since 1982 that is the argument. It’s also a labor market with the lowest number of jobless claims in 52 years and standing just 0.2% from the Fed’s target for maximum employment as of November. If these aren’t compelling reasons for monetary tightening, one has to wonder what will be.

On Powell’s end, his transformation from dove to hawk was almost complete when he told the senate at the end of last month that it was time to stop calling the runaway US inflation as transitory. He also warned that “the threat of persistently higher inflation has grown” due to the emergence of the Omicron variant, and that surging price pressures could last “well into next year.”

Even so, the Fed chair conceded that Omicron poses further “downside risks to employment and economic activity”. 

Given such complicated prospects, the Fed will push for double-digit taper.

Powell will speak to us Wednesday.

Technical Outlook for Gold

Sunil Kumar Dixit is a frequent contributor to Investing.com’s commodity technicals. He says that gold must remain above $1768 for the next week in order to prevent it from falling to the $1,700s, or below.

“A decisive break below $1,768 can push gold down to 1758, which is the trigger for a correction to $1,745-$1,735 and $1,720,” said Dixit, who is chief technical strategist at skcharting.com.

Dixit noted that bullion’s spent the week in the $1,793-$1,770 band, while sitting inside the previous week’s bearish candle. 

In his view, bullion closed the week with “indecision”, at $1,782.75 while the weekly stochastic reading for Relative Strength Index, or RSI, stayed bearish at 23/43.

“Further moves will largely depend on prices breaking out of the two trend keys – the 50%-Fibonacci level of $1,797 and the 61.8%-Fibonacci level of $1,768

Dixit indicated that gold might surprise people and go higher.

“A volume-supported move above $1,797 may trigger a run-up to the next major leg of $1,825,” he  said.

Oil Market Activity & Price Roundup

After six weeks of losses, oil prices saw their first weekly increase. Analysts warn that there will be more volatility because the market is trying to reduce downward pressure due Omicron-related news as well as rate hike fear amid optimism about the future quarter. 

The benchmark crude oil price in the United States was $71.67 per barrel, which was up 73c or 1%. WTI rose 8.1% for the week. It fell to $62.48 in the last week due to Omicron-related concerns. This was after an $85.41 high in October that had been seven years ago.

The London-traded benchmark oil price also gained 73cs, just like WTI which saw a 1% gain to reach $75.15. Brent gained 7.7% for the week. It fell to $65.80 last week from an $86.70 high in October 2014. 

“Omicron is still a major risk factor,” Phil Flynn, analyst at Chicago’s Price Futures Group and an avowed oil bull, said as crude prices showed a gain of around 7% on the week after losing some 20% over six previous weeks.

Flynn also pointed out a Bloomberg article that showed passenger vehicle traffic on U.S. interstate roads was back at pre-Covid levels. Mileage increased 0.3% over a rolling four-week average. This is the first positive rate of growth since March 2020.  “Omicron may – or may not – change the trend,” Flynn said, referring to a quote in that story

Nearly 80% of 40 Omicron cases in America were fully vaccinated. A third even received a booster, according to the U.S. Centers for Disease Control and Prevention. This complicates efforts to combat the new Covid variant.

Global health experts, including top U.S. virologist and White House adviser Dr. Anthony Fauci, say the effects of Omicron appeared to be less severe than initially thought.​​ Pfizer BioNTech, (NYSE:), and the company that is its partner have said they could use three doses to neutralize this variant.

But news on Thursday also showed Omicron was 4.2 times more transmissible than Covid’s Delta variant, which led to a resurgence in hospitalization and deaths around the world. What’s not known is the fatality rate of the new strain, though its spread rate was enough to stoke fear.

WTI Technical Outlook

Dixit points out that WTI has taken support at $62.40 after six consecutive weeks of falling. That level is a resistance that WTI relies on for multiple price swings since March 2021.

U.S. crude’s weekly stochastic RSI reading of 29/21 with a bullish crossover hints at a continuation of upside, while a sustained move above the weekly middle Bollinger Band of $73.90 can be supportive for a further recovery in prices, he said.

“This also coincides with the 50%-Fibonacci retracement measured from the $85.40 high to $62.40 low,” said Dixit.

“Volume-driven buying above this zone can further extend recovery to $76.60 and $80.”

However, failing to exceed $73.90 may cause WTI to fall to $67.30 for its 50-week Exponential Movement Average and to retest the $62.40 high, he warned.

Disclaimer:Barani Krishnan doesn’t hold any positions in securities and commodities that he discusses.