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Gold has finished the last session before the Christmas holiday with a sharp rise. Gold prices have been growing for the two consecutive sessions. some experts have even seen signs of a rally.
Today, many trading floors around the globe, including the gold market, are closed in anticipation of Christmas. Gold finished the shortened week with a strong increase yesterday. Since Monday, the quotes have jumped by 0.4%, recording the third consecutive weekly growth.
On Thursday, gold continued to move above the psychologically important level of $1,800, which has been broken recently. It closed the session on COMEX at $ 1,811.70, its highest level in 5 weeks. As a result, it has climbed by $9.50, or 0.5%.
The main catalyst for gold's rise in recent days is market concerns about the spread of a new strain of coronavirus, which may have a negative impact on economic prospects in the coming year.
Yesterday, gold asserted strength amid the weakness of the US dollar. The greenback remained near a weekly low amid risk appetite.
In anticipation of Christmas, the US stock market is traditionally growing. According to analysts, the Christmas rally in the equity market is bullish for gold, facilitating its short-term rise.
"Gold faces technical resistance at $1,815 and $1,826, with geopolitical risks ahead potentially keeping gold supported, despite the tapering narrative," said Nicholas Frappell, a global general manager at ABC Bullion.
Now, many experts are confident that traders have already priced in the Fed's monetary policy tightening. This is why if the Fed hikes the key rate, gold is unlikely to drop significantly.
Analyst Sean Lusk believes that gold is sure to spread wings amid a tense epidemiological situation in the world, gold. Omicron, which may slow down the global economic recovery, will eventually force the Fed to postpone an interest rate hike.
If the regulator decides to raise the key rate, the government bond yields will still remain low, which is bullish for gold, the expert emphasizes.
Another positive macroeconomic factor for gold is the growth of consumer prices. In 2022, rising inflation may trigger a rally in the previous market, strategist Frank Cholly notes.
"There is going to be a point that gold begins to get a lift from the idea that this inflation is heating up. As we move into Q1 2022, we will see further price pressures. And when gold gets above $1,850 this time around, the path of least resistance will be higher. Even though the initial reaction to the Fed tapering and higher interest rates might be negative for gold, once processed, it could trigger another rally," he noted.
Yet, before opening long positions on gold, investors need to make sure that the price increase is not fueled by a false rally.
- Throughout the year, the gold market has been playing with traders. It rose sharply, but then the upward movement fizzled just as quickly. Therefore, the analyst is not completely sure of the strength of gold until it reaches the level of $1,850.
If gold manages to finish the outgoing year at above $1,850, the next target may be $2,000, Walsh Trading co-director Sean Lusk believes.
"From a seasonal perspective, demand for physical gold is a big aid in driving prices higher from mid-December to Valentine's Day. In the next 6-8 weeks, gold and silver could thrive," Sean Lusk said. "With the new variant coming in, easy money policies will remain. Granted, the Fed signaled that they would start rate hikes. But there is still a lot of uncertainty out there - global economic recovery and new geopolitical tensions," he noted.
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