Despite a number of event risks, gold prices were largely unchanged last week.
The larger fundamental environment is likely to continue bearish going forward, and XAU/USD is exhibiting more and more technical indicators of reversing.
Gold prices ended the previous week virtually steady despite a five-day period of volatility as XAU/USD dropped by 0.25%. The Federal Reserve, Fedspeak, a US CPI report, and even the European Central Bank were among the many things the yellow metal had to process. In the final few weeks of 2022, all of these could have a long-term effect on gold prices.
The most recent US inflation report was unexpectedly lower, supporting the idea that the Fed has reached its maximum hawkishness. However, the CPI index's main component kept moving up, raising worries about future sticky pricing. In the meantime, the Fed reduced the aggressive 75-bps pace seen earlier this year and delayed the tightening process, lifting rates by 50 basis points last week.
However, the central bank kept emphasizing that there is still work to be done. The central bank is "far away," according to San Francisco Fed President Mary Daly, from achieving its mission of maintaining price stability. A closer examination showed that the market is still more dovish than what the Fed anticipates for future interest rates. Future volatility risk exists even though it may not be a problem for gold in the coming week.
Last but not least, the ECB's unexpectedly hawkish attitude caught traders off guard. When central banks throughout the world are all tightening, anti-fiat gold prices are most at risk. That is why gold has had such a bad year and will probably keep posing a threat to XAU/USD. Next week, all eyes will be on core PCE, the Fed's preferred inflation indicator. The yellow metal may rise if the outcome is milder, but significant upward movement might not occur until the narrative's tightening.
Slightly bearish technical outlook for gold
Technically speaking, gold appears to be exhibiting an increasing number of warning indicators of an impending reversal. A bearish Rising Wedge chart formation was broken last week by the XAU/USD pair. However, there wasn't enough execution. Upside momentum has been waning, as indicated by negative RSI divergence. Furthermore, a bearish Evening Star candlestick pattern developed on top of this.
The possibility of undoing gains since November may become more likely with additional downside confirmation. The 50-day Simple Moving Average would then be the focal point (SMA). The latter might reestablish the near-term bullish focus. Otherwise, the high point from December 13th, at 1824, will be a major obstacle. The June peak at 1879 is revealed if that price breaks above that level.