By Barani Krishnan

Investing.com. The party of two in gold has been two weeks.

The Federal Reserve took big out of gold markets with its ultra-hawkish monetary policies to help the United States out of their worst inflation crisis for decades.

“The $1,800 level was a key support level for gold, so momentum selling has the potential to make this an interesting trade,” said Ed Moya, analyst at online trading platform OANDA. “If it gets ugly quickly and $1760 breaks, gold may not see much support until $1720.”

Gold futures’ most active contract on New York’s Comex, , settled down $8.40, or 0.5%, at $1,778.80 an ounce. The benchmark gold futures contract dropped just short of $60 over the last two sessions. This resulted in a more than 22% weekly loss, almost wiping out back-to-back gains over the previous two weeks.

Federal Reserve Chairman Jerome Powell has not discounted the possibility that U.S. rates could rise every month after this first hike in pandemic-era inflation.

Following the Covid-19 epidemic in March 2020, the Fed lowered interest rates to almost zero. They kept them unchanged for 20 months. Powell and other central bank representatives say that rate rises are needed to stop price increases, which have been increasing as a consequence of massive pandemic relief expenditures and disruptions in the supply chain.

The gold is a good hedge against inflation, while rates rises tend to be negative for the yellow material.

Even before the January run, however, gold was struggling to live up to its role as inflation hedge. In anticipation of rising rates, it would often be spiked.

The yellow metal managed to hold steady at $1,835 last week after breaking through resistance levels.

“The breakout above $1,850 was actually a fake-out scripted by the bears in the backdrop of Fed’s hawkish tone that turned tables on the bulls, pushing gold down to $1,791,” said Sunil Kumar Dixit, chief technical strategist at skcharting.com and a long-term follower of gold charts.

Dixit said gold’s weekly stochastic reading of 60/69 made a negative crossover below the 70 line, supported by a downward pointing Relative Strength Index that showed domination by bears in the market.

He said:

“It looks like the rout is far from over as the weekly close below $1,797 — which is a 50% Fibonacci retracement, measured from the $1,678 low of March 2021 to the $1,916 peak that followed — may extend the bearish bias which will target $1,785, $1,770 and $1,753 initially.”

On the other hand, gold’s daily stochastic reading of 11/32 was approaching oversold territory, said Dixit.

“This may start a short term reversal by mid of next week, causing a bounce back in gold prices to retest the $1,818-$1,825-$1,835 levels.”

Although the current odds against gold are stacked in their favor, many analysts believe the metal can still find the strength to surpass record heights this year. This is assuming the U.S. inflation theme continues strong into 2022.

Gold reached an all-time peak of $2,100 in 2020 due to inflation fears. This was because the United States had just experienced its largest budget deficit since the Covid-19.

Some others disagree.