By Barani Krishnan

Investing.com – An inflection is an area of a curve where there’s a deviation in the direction in which the curvature changes. In trading perspective, it’s the point at which your position could go in a way that lets you raise a glass in celebration – or groan at how you’ve dismally misread the market once again.

The gold price is currently at that level after Friday’s settlement at $1,800 an troy ounce. It was supported by a small bounce on Friday despite a nearly 2% decline in weekly volume since November.

Just before closing, yields reached two-year highs. The dipped slightly from recent highs.

Gold showed resilience at the latest session. It could have been running on U.S. Inflation, which is chugging along at its fastest pace since 40 years. That not only makes the yellow metal an interesting trade but also one that’s getting harder to read.

“Gold had a bad week, but it could have been much worse when you consider the 10-year Treasury yield went from 1.53% to 1.75%,” Ed Moya, analyst at online trading platform OANDA, said in a post on Friday just before the benchmark yield rate went to January 2020 highs of 1.79%.

While gold labored below the $1,800 level and the 50- and 200-day Simple Moving Averages, “a continued selloff seems less likely”, Moya, said. But he conceded that “if bearishness resumes next week, buyers could emerge at the $1,770 area.”

Monday’s trading session was an opportunity for long-term gold investors to experience a déjà vu. They entered 2022’s first day with bloody noses.

However, gold prices plunged about 1.5% on the day, their highest since November 3rd. Gold prices recovered the $1800 territory, but just barely. Futures closed the New York session at $1800.10 per ounce, while they settled at $1800.85.

The mixed message in gold was that people believed in it as an inflation hedge. Short sellers also looked to lower it further in case yields and dollar rallied in a rally that could spell doom for gold.

Monday’s action in gold also proved something else: that a massive wall of resistance awaited longs at above $1,830 an ounce.

The $1,830 resistance has been broken numerous times by Gold since November. The Federal Reserve minutes of December’s meeting were published on Wednesday. They indicated that the U.S. could begin raising its interest rates as soon as March, which was the pandemic-era start. The Fed minutes for December have once again signaled a positive for yields as well the dollar. However, it has been a doom story for stocks and safe-havens including gold.

The $1,830 wall could now be a longer-term stay, say chartists plotting gold’s next technical move.

”The prices of $1,829 and $1,832 are both Fibonacci retracements, the latter of which is the 38.2% marker of the 2020-2021 major move,” precious metals senior strategist James Stanley wrote in a blog post that appeared earlier this week on Daily FX.

“This same confluent zone caught highs in gold during July, August and September of last year,” he said.

The bearish flag for gold in 2022 could not be missed given the environment in which the Fed is expected to begin lifting rates at some point this year, Stanley noted, adding: “Timing remains of issue, but the accompaniment of a shorter-term bear flag keeps the look on the short side of the market.”

He said that the short side of gold could be worth more, and bring it down to $1,700.

Stanley said that the support zone that was created by three separate tests at $1,680 in 2021 served as a new floor for yellow metal. “That horizontal zone came into play in March, April and August, with an assist in August from a longer-term Fibonacci retracement from which a 38.2 plots right at $1,682.”

“Of note, those support bounces appear to be carrying a diminishing marginal impact, which has allowed for a bearish trendline to form. The bearish trendline combined with horizontal support makes for a descending triangle formation, which will often be approached with the aim of bearish breakdowns.”

Gold has traditionally been touted as a hedge against inflation, although that argument was weakened last year as the yellow metal’s prices steadily fell in the face of ramping price pressures in an U.S. economy rebounding aggressively from the coronavirus pandemic. As both yields and dollars rallied in anticipation of Fed rate increases to reduce inflation, gold often fell.

Fed officials have set out a fast-track plan to end its stimulus program during the pandemic. They also suggested that it may increase rates by as much as three times in 2022. But those plans will also depend on its ability to keep inflation at 2% a year and unemployment ideally at around the 4% level that it defines as “maximum employment”.

“The Fed is unlikely to have as many rate hikes as it thinks in the coming year and if employment slows again for any reason, hedging in gold could again become a theme,” said Phillip Streible, precious metals strategist for Blueline Futures in Chicago.

The US jobless rate soared to a record high of 14.8% in April 2020 after the COVID-19 outbreak, but fell back to 3.9% last month – meeting the Fed’s target for maximum employment. But the US and the Fed’s preferred inflation gauge – the core Personal Consumption Expenditures Index – both grew at their fastest in 40 years in November.

Rate hike news is nearly always bad news for gold. Gold closed down last year in 2021 at 3.6%, the first time it had fallen in three consecutive years.
But some analysts think that if the U.S. inflation theme remains strong through 2022, then gold could rebound, and even retrace 2020’s record highs above $2,100 – which, incidentally, came on the back of concerns about soaring price pressures.

Gold Price Roundup & Technical Outlook

Gold futures’ most active contract on New York’s Comex, , settled up $8.20, or 0.5%, $1,797.40.

For the week, it fell 1.7% after Thursday’s slump of almost 2%.

Sunil Kumar Dixit, technical strategist at skcharting.com, said gold’s outlook for the week ahead was full of possibilities on either side of the fence.

“There’s an oversold stochastic on the daily chart and a positive closing on the daily chart as well that can cause some recovery if prices are supported above $1,798,” said Dixit. ”It may test $1,810 as the first target and extend that to $1,825 on consistent buying.”

Gold had reached its previous high of $1831 the previous week, but it was met with brutal rejection. It broke below $1789, touched $1,782, before finally settling at $31 per week, at a Fibonacci 50% retracement measuring the distance between the May 2021 high (1,916) and the March 2021 low (1,678).

“Failure to hold above $1,797 may resume selling to retest the $1,782 low and extend the downside to $1,770-1,768. This would be a 61.8% Fibonacci level at the aforementioned retracement. The $1,770-$1,768 zone is key to a major swing low of $1,753.”

Roundup of the Oil Market

Crude prices dipped Friday as longs in the market took some profit after a four day run-up, but the week was still a big one for oil bulls enthused by OPEC’s decision to raise output in a market still troubled by the impact of Covid variants on the global economy.

An underwhelming U.S. jobs report for December – with just 199,000 positions being added versus expectations for 450,000 – also weighed on the latest trading session on oil, although the country itself was at the Fed’s definition of maximum employment with a jobless rate just shy of 4%.

“While optimism is high that the Omicron variant’s impact on the crude demand outlook will be short-lived, it is too early to be optimistic that the worst of this wave is over,” said OANDA analyst Moya. “With the US still seeing parts of the country struggling with hospitalizations and Germany considering fresh curbs, and as China continues to resort to harsh lockdowns, the short-term demand outlook still has a handful of headwinds.”

But while that may be the case, global producer alliance OPEC+ was also keeping a tight leash on output despite agreeing to a 400,000-barrel-per-day increase for February — a trend it has kept to since August as demand for crude returns to pre-pandemic levels.

“The oil market remains very tight and that should remain the case for the first half of the year as the growth outlook across the U.S. and Europe remains very strong,” Moya added.

Apart from the market confidence regarding OPEC+, oil prices also benefited this week because of geopolitical risk due to the Kazakhstan crisis.

Crude Price Roundup & Technical Outlook

The benchmark crude oil price, WTI, fell 0.7% to $78.90 per barrel, which is 56 cents less. WTI gained 5% in the past week. It has gained for about 10% overall.

The London-traded benchmark oil price fell 0.3% to $81.75, closing Friday down 24 cents. Brent rose by more than 5 percent for the week. The global benchmark oil price settled at $81.75, or 0.3%, on Friday.

Dixit of skcharting.com said WTI could consolidate in sideways action but with a bullish bias after last week’s bullish wave supported by the $74 level that shot to the $80 psychological barrier.

“Trading on the stronger side of $80 can send U.S. crude to the $83 and $85 areas, amid mid-term targets for $89 and $90,” said Dixit. “But the upside momentum may fizzle out if major short term support areas of $75 and $73 fail.”

Disclaimer:Barani Krishnan is not a shareholder in any of the securities or commodities he writes about.