Spiraling Inflation and Geopolitical Concerns Result in a Strong Breakout in Gold

First was yesterday’s inflationary data indicating that the CPI index has increased to 7.5% in January. Secondly, the geopolitical tensions in Ukraine and Russia have continued to strengthen.

As of 3:02 PM, EST April gold futures have staged a strong and dynamic rally taking the most active contract to $1864 which is a net increase of $26.60 or 1.47%. Gold has traded to a high today of $1865.20 and that high occurred within the last 10 minutes of trading. Gold futures opened today at $1827 and traded to a low of $1821.10. This rally is absolutely a haven play as we have concurrent strength in the U.S. dollar and a defined selloff in U.S. equities.

Currently, the dollar index is fixed at 96.105 which is a net gain of 0.58% or approximately 55 points. Dollar strength can be seen when we look at spot gold pricing through the eyes of the KGX (Kitco Gold Index). Currently, the KGX is fixing spot gold pricing at $1860.50 which is a net gain of $33.90. On closer inspection gains due to normal trading our $40.65 a strong gain of 2.23%. However, when we factor in dollar strength we must subtract $6.75 or 0.37%.

Concerns about inflation

Data on consumer pricing confirmed what working Americans already know; that the costs of goods and services continue to spiral out of control and put more pressure on average Americans in meeting the financial needs of their households as the daily essentials continue to cost more.

Yesterday the Labor Department released the consumer price index for January which came in above economic analysts polled by Bloomberg News. The expectations from their forecast were anticipating that inflationary pressures would rise to 7.3% which would be the net result of an increase of 0.4% in January. Estimates by economists polled by Dow Jones concluded that there would be an increase to 7.2% year-over-year in January.

The actual numbers came in well above both forecasts with the consumer price index for all items rising by 0.6% in January which resulted in an annual inflationary level of 7.5% year over year. This is the largest inflationary increase since February 1982.

On the Russian Front

Today’s strong and dynamic rally in gold is also a reflection of the current geopolitical tension between Russia and Ukraine. Within the last couple of hours of trading for the week ending February 11. Bloomberg News reported, “The U.S. believes Russia could take offensive military action or attempt to spark a conflict inside Ukraine as early as next week, U.S. National Security Advisor Jake Sullivan said, “Russia could take offensive military action or attempt to spark a conflict inside Ukraine as early as next week, before the Winter Olympics in Beijing wrap up.”

Obviously, we have extremely fast market conditions and as of 3:30 PM with only one hour left in trading gold has made a new high of its $1867.40 and is currently fixed at $1887.30.

On a technical basis, our studies indicate that today’s strong upside rally in gold has formed a price breakout as seen in both our weekly and daily candlestick charts. We have included two charts in this study, with one weekly and daily candlestick chart. Based on recent highs in the market now that gold has broken above resistance our next price target should gold continue to trade higher is $1880, and finally above that is the top that occurred in June 2021 when gold prices reached $1920.

Wishing you as always good trading and good health,

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Gary S. Wagner