Sunday, January 23, 2022

Gold opens all its sails to capture strong tailwind from dollar weakness

Extreme dollar weakness resulted in strong tailwinds that propelled gold to higher pricing today. 5:45 PM EST Based on gold futures, the most active February 2022 contract is currently $7, up 0.38% and settled at $1825.30. Yesterday’s double digit gain in gold price that opened at $1801.40, traded as high as $1822.90, and then settled just below yesterday’s high of $1818, on hopes that today’s CPI index would reveal an expansion of inflation continues. The dollar broke over 0.7%, down 0.67 points, and is currently settled at 94.955.

The US dollar sold strongly today as the Bureau of Labor Statistics released the most current data on inflation, showing that inflationary pressure continues to mount, now at the highest level we have seen in 40 years. Today’s inflation report showed that the current level of inflationary pressure is now at a 40-year high, with the last event of inflation at these levels occurring in June 1982.

The U.S. Bureau of Labor Statistics reported the following, “The Consumer Price Index (CPI-U) for all urban consumers rose 0.5 percent on a seasonally-adjusted basis in December after rising 0.8 percent in November, the U.S. Bureau of Labor Statistics reported today. In the last 12 months, the index for all commodities has increased by 7.0 percent before seasonal adjustments.

The biggest contributor to inflationary pressures is the cost of shelter as well as used cars and trucks. The report also indicated that the food index, although it rose less than in recent months, still rose 0.5% in December.

The core CPI index that separates food and energy costs is still the preferred inflation barometer used by the Federal Reserve. The report indicated that all commodities rose 5.5% with the lapse of the food and energy indices, “the largest 12-month change since the period ending in February 1991.” The energy index rose 29.3% over the previous year, with food costs up 6.3% during the same period.

With inflation at these historic levels, it will not be an easy or short-term project for the Federal Reserve to halt its dramatic growth. The actions of the Federal Reserve can only do much to reduce rising levels of inflation. One of the primary causes of recent inflationary pressures is supply chain constraints and constraints. These constraints are largely a byproduct of labor shortage. This shortage of workers can be seen in factories making goods. It is also prevalent among workers who are responsible for various components of distribution. As long as there is a shortage of workers to produce goods, unloading boats, and trucks to move goods, supply chain bottlenecks will continue to be scarce.

If gold continues to gain price as I believe it will not face any technical resistance at $1833.40 which corresponds to the 38% Fibonacci retracement. A 23% Fibonacci retracement can be found above that resistance at $1851.60. Major resistance lies at $1879.50 based on the November 16 high of last year.

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Best wishes to you as always, good business,

Gold opens all its sails to capture strong tailwind from dollar weakness

Disclaimer: The views expressed in this article are those of the author and may not reflect those views Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; However, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to exchange goods, securities or other financial instruments. Kitco Metals Inc. and the author of this article is not liable for damages and/or damages caused by the use of this publication.

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