Gold prices rose on Monday, despite expectations for interest rate hikes by the United States Federal Reserve, putting non-yielding bullion on track for its worst month since September, while palladium was set to have its best month in 14 years.

During the Asian session, gold was up 0.4 percent at $1,797.79 per ounce, heading for a 1.7 percent loss for January. Gold futures in the United States settled 0.6 percent higher at $1,796.40.

The dollar has risen against other currencies due to expectations of Fed rate hikes, while other central banks have yet to move, posing a problem for gold. As a result, the dollar index was expected to rise in value for the month, making greenback-priced gold more expensive for holders of other currencies. Therefore, gold is taking a bearish turn.

Fed Interest Rate Hike Sentiment Weighs on Gold

The Fed intends to raise interest rates in March, assuming that the economy will largely avoid the consequences of the Omicron coronavirus variant and continue to grow at a healthy rate.

The employment cost index, the broadest measure of labor costs, rose 4 percent year on year in the fourth quarter, the largest increase since 2001, and the personal consumption expenditures price index rose 5.8 percent year on year in December, the largest annual rise since 1982 and nearly tripling the Fed’s 2 percent inflation target.

At this point, a rate hike at the Fed’s March 15-16 policy meeting is almost certain. However, the size of that increase is uncertain, with some analysts expecting the Fed to opt for a larger half-point increase rather than the usual quarter-point hike to tighten credit faster and demonstrate its seriousness about lowering inflation.

Much depends on how the economy, inflation, financial markets, and the virus perform in the coming weeks.

Gold (XAU/USD) Technical Outlook

Gold traded sharply bearish, having plunged to 1,782 support level before taking a bullish reversal. On the higher side, XAU/USD may find resistance at the 1,799 level. The downward trendline is extending such resistance, however, a break above $1,799 resistance can open further room for buying until 1,809 level. Continuation of the uptrend can drive further upward movement until the 1,822 level. 

Alternatively, a break below 1,790 support level opens up further room for selling until 1,785 or 1,780 level. Let’s consider staying bearish below 1,799 and vice versa. Good luck!