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Gold Rushed by a Wave of Economic Data

This week’s a big one for gold. A steep wave of fear, greed, and data is about to hit the gold market. It begins with two Congressional testimonies by Fed Chair Jay Powell on Tuesday and Wednesday, the ADP Employment report and JOLTS report on Wednesday, the weekly Jobless Claims report on Thursday, and the big Jobs Report on Friday.

How’s this going to impact the yellow metal? It all centers on inflation and the Fed’s efforts to cool it with its continuing rate hike program.

How are things looking? The last three inflation readings—CPI, PPI, and PCE—were no bueno. This week, a flurry of labor releases may tip the scales in favor of gold bulls or gold bears.

The suspense. Two things: rising labor costs and participation rate. Increases in the former with very little movement on the latter makes for an unfavorable inflation mix. And Wall Street will be watching to see if the Fed decides to aggressively crank up its monetary controls.

Speaking of “controls“… that’s where GLD (SPDR Gold Shares ETF), our gold proxy, seems to be right now if you look at the Volume by Price overlay (explained below) in Chart 1. Note: click on the chart for a live version.

CHART 1: INVESTING IN GLD. A Golden Cross, MACD bullish crossover, and a rising SCTR rating indicate a potential rise in GLD. The longest Volume by Price bar lines up with a possible support level which GLD could bounce from. Any change in the indicators from a bullish bias to bearish one could indicate that GLD may fall further.Chart source: StockCharts.com. For illustrative purposes only.

On the technical front: There are a couple of technical aspects we’re keeping a close eye on.

First, we all see the Golden Cross event that took place in early January (circled in red). That’s a bullish signal, but let’s take a wider look.Notice the longest bar on the Volume by Price overlay. This resembles what legendary trader Peter Steidylmayer would call a “Point of Control.” Over the last six months, this was the price level that had the highest volume, and it looks like selling pressure was a little weightier. Still, the indicator adds weight to the support level from which gold bounced at the end of February. Will it hold? Let’s hunt for a few more technical clues.The MACD line appears to be crossing above the signal line, and both are below the baseline. This indicates room for a relatively big upward swing. But, again, it depends on what transpires this week.Finally, the SCTR rating jumped. This technical ranking can be pretty volatile at times, but, when you need a quick-glance summary of various technical conditions, it comes in handy.

What we’re watching: There are times when a market trades more technically than fundamentally. This is not one of those times. If the Fed’s policies can wash over technicals like a giant wave, then the coming reports are likely to wash over Fed expectations like a tsunami.

Any indication of inflationary flare-ups leading to prolonged rate hikes may drive GLD well above the current “point of control.” Of course, the opposite can also be true, depending on the reports.

Still, the range of analyst gold price targets for 2023 is HUGE! We’re looking at a range between $1,550 an ounce (Societe Generale, according to the Bullion by Post) to $4,000 an ounce (Swiss Asia Capital, as reported on CNBC). Crazy, right?

Either extreme would spell W-I-N-D-F-A-L-L- or W-I-P-E-O-U-T for either camp (bull or bear). In short, there’s a wide range of trading opportunities. It all depends on the data. And much of it begins this week.

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

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