The gold price decreased for the second consecutive week in the local market, dipping 1.21 percent on a week-on-week basis.
However, gold faced its first retreat in four weeks in the international market, starting the new year on the back foot. The gold prices suffered a loss of 1.79 percent internationally, coming down from $1829.80 to $1,797 per ounce.
The price of 10 grams of gold in Pakistan decreased from Rs103,450 to Rs102,200 during the last week, after witnessing a decrease of 0.10 percent in the preceding week. The relatively lower depreciation in the local gold price was due to the rupee’s devaluation against the US dollar during the period under review. The rupee depreciated by 0.24 percent against the American currency, slipping from Rs176.51 to Rs176.67 during the aforementioned period.
The main factor behind this fall were surging US Treasury bond yields, as the 10-year bond yield rose more than 15 percent last week and reached 1.766 percent. Treasury yields climbed all the week, pressuring the non-yielding yellow metal, following the release of minutes of the Federal Reserve meeting which indicated that the US central bank was ready to more aggressively pull back its policy support of the economy.
The improvement in equity markets after Omicron-related fears as well as the markets’ broader appetite for risk about potential economic disruption faded, also remained a headwind for the non-yielding gold. The signs that the Omicron variant might be less severe than feared acted against a generally positive risk tone and undermined gold.
Investors turned optimistic after reports indicated that the current vaccines may be more effective than first thought in fighting the Omicron variant. Moreover, studies suggested reduced risks of hospitalization and severe disease in people infected with Omicron compared with the Delta strain.
From a technical perspective, the Relative Strength Index (RSI) indicator stays a little below 50, showing a bearish trend. The main bearish development is the fact that gold closed below the 200-day simple moving average (SMA) on Thursday and failed to reclaim that level on the last trading session of the week.
The gold price enjoys strong support at the 1,780 mark, which is also December’s last week high. However, if gold closes below that level in any session during the week starting today (Monday), the next downside target is seen at the $1,770 level. Further down, on December 15, a low of $1,753 could be witnessed.
On the flip side, gold is neutral-to-bearish in the near term and can attract buyers’ traction if it manages to reclaim the psychological level of $1,800 – the first resistance at present and also the 200-day simple moving average – and starts using that level as support. Above that hurdle, $1,815 and $1,830 are the next two very strong resistances.
In the coming week, the US Consumer Price Index data for December will be released on Wednesday. If annual CPI jumps close to 7 percent, the gold price may suffer; however, a soft CPI inflation figure could open the door for a near-term rebound in the gold price. However, any recovery attempt is likely to remain technical in nature amid surging economic activity.
