Gold commenced the week in a muted fashion as investors digested last Friday’s mixed US jobs report.

Bulls and bears were missing in action with prices stuck within a $10 range despite the cautious mood. While the Fed’s hawkish tilt, Omicron fears, dollar, and Treasury yields among other themes are likely to continue influencing gold, the precious metal could be waiting for a fresh fundamental spark. Taking a look at this week’s economic calendar, this catalyst may be the latest US inflation numbers released on Friday.

After concluding November -0.5% lower, things are looking slow for the precious metal thus far. Nevertheless, some action could be around the corner if prices break above or below the two-week range.

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All eyes on the US inflation report

Inflation in the United States remains at elevated levels with consumer prices surging 6.2% in October, the highest in more than three decades. November’s consumer price index data is expected to show inflation surging to 6.7% thanks to persistent supply chain issues, higher energy costs, and strong consumer demand. Given Jerome Powell’s recent comment that the Fed could speed up bond tapering to counter inflation, the pending CPI report has the potential to rock markets.

Another jump in US consumer price inflation may fuel market expectations over the Federal Reserve raising interest rates more quickly than expected. But this is where things get tricky. If the Fed pulls the rate hike trigger prematurely, this may expose the US economy to downside risks. It will be interesting to see how the Fed tames inflation without sending the U.S economy into a recession, while also dealing with the Omicron threat. A hot US CPI report could rekindle appetite for safe-haven assets like gold if US recession fears resurface.

Traders are currently pricing in a 64% probability of at least one rate hike by early May 2022 and a 99% probability by mid-June next year.

Gold ETFs favour bears  

According to an automated report from Bloomberg, gold ETFs cut 196,935 troy ounces of gold from their holdings last Friday, marking the biggest one-day decrease since October 1st, 2021.

The sharp outflow could be the result of the mixed US jobs report doing little to alter hawkish Fed expectations. An ETF (Exchange Traded Funds) is an investment instrument that allows retail traders to gain exposure to an existing market or groups of markets. A gold ETF provides investors exposure to gold without owning it physically. Outflows from ETF’s are seen as bearish for the underlying asset. In this instance, ETF investors could be reducing their exposure to the zero-yielding metal amid the prospects of higher interest rates.

Keep an eye on the breakout

Gold prices have been trapped within a wide range on the daily charts with support at $1765 and resistance around $1810. A solid breakout and daily close above $1810 could encourage a move towards $1831, $1845, and $1870. Should $1765 prove to be unreliable support, a decline back towards $1750 and $1726, could be on the cards.

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