Gold Grounds at $1,800 After US Inflation Drops, Crypto Meltdown

• US consumer prices at 9-month lows, suggesting a smaller rate hike in December
• Contagion in crypto could be another boon for gold
• After gold tests $1,771, the next leg is higher at $1,796-$1,805

It has the look and feel of the many bull traps we’ve seen in – where all the stars seem to align for a meaningful rally, only for them to fizzle before we get there.

Still, if the goldbugs are right with their gumption – at 9-month lows suggesting they likely are as the Federal Reserve looks set to make a minor rate hike by December – then $1,800 and more for an ounce could be on the way.

Ed Moya, analyst at online trading platform OANDA, touched on the same in his closing market commentary on Thursday as gold futures hit 11-week highs, breaching the $1,750-per-ounce barrier.

“Gold prices are rising as a cool inflation report has made markets confident that the Fed may taper [its] hiking pace … and possibly done with tightening after the March FOMC meeting,” Moya said, referring to the central bank’s Federal Open Market Committee. Add:

“Gold is breaking out here and it could have a smooth path towards the $1,800 level if dollar weakness continues.”

Charts courtesy of SKCharting,com, with data powered by Investing.,com

Gold led commodities on a broad-based rally on Thursday after the US consumer price index rose just 7.7% over a 12-month period in October, against the 7.9% growth forecast by economists and against the annual growth of 8, 2% until September. Historical data showed it was the lowest annual reading for inflation since January.

which puts the dollar against , , , , and meanwhile fell 1.9% to hover below the 108 mark against last Thursday’s three-week high above 113.

Investing.com data showed it was the dollar’s biggest one-day percentage loss since Oct. 27, 2011, when it also fell 1.9%.

But it is not just the Fed – and the fall in the dollar – that is giving wind in gold’s sails.

The contagion in the cryptocurrency market could be another boon now for the yellow metal.

Gold is likely to gain at least some of the money that had exited in the past week when the king of digital currencies fell 25% on concerns related to crypto exchange FTX, said Phillip Streible, chief market officer at Blue Line Futures in Chicago.

Streible adds:

“There is no hard data to confirm money flows from crypto to gold now, but I would be surprised if it doesn’t happen.”

“Usually it’s the other way around since gold rarely finds love from the crypto crowd. But gold looks relatively safer now than digital currencies, and think it has gained new respect which could mean higher allocations that might have been meant for crypto.”

Moya also believes that crypto’s problems are deep enough that investors may be looking for protection against their losses.

“A dark crypto period was set to begin after the FTX debacle, but a cooler-than-expected inflation report gave every risky asset a massive boost. The risk of FTX contagion remains high…investment in cryptocurrencies is likely to struggle here as too many key institutional investors and crypto companies have cash tied up to the bankrupt stock exchange.”

“Until we see which players were affected by FTX, and if we see other exchanges vulnerable to a liquidity crunch, any crypto rebound could fade.”

But even without crypto contagion, gold appeared to have the inherent strength to extend the current run higher, said Sunil Kumar Dixit, chief technical strategist at SKCharting.com.

Benchmark U.S. gold futures for December ended Thursday’s trade up $40, or 2.3%, at $1,753.70 an ounce on New York’s COMEX. The session high of $1,758.20 was the highest since October 27.

which is followed more closely than futures by some traders, settled at $1,752.26.

Dixit, who tracks the spot price, said gold was ripe for a trend change after seven straight months in the red.

“Excited accumulation has exploded in gold, breaking through last month’s high of $1,730 and now nearing the 50-week exponential moving average of $1,771.”

Above the 50-week EMA at $1,771, the next leg higher is at $1,796-$1,805, Dixit said.

But gold may still lose its upward mojo and turn lower at some point, Dixit warned.

“Overbought conditions on Daily Stochastics could lead to profit booking from the key resistance zone of $1,796-$1,805, triggering correction to the support areas of $1,730 – $1,710 – $1,693 – $1,680.”

Disclaimer: Barani Krishnan uses a variety of viewpoints outside of his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents conflicting views and market variables. He does not have positions in the commodities and securities he writes about.