Gold firmed after falling to a nine-month low.
The yellow metal is down 16.5% from its Mar. 8 all-time high. What's interesting about this is that gold is supposed to be an inflation hedge. The price should be rallying as we are enduring the highest inflation in over four decades.
The reason is that traders have been pricing in the most aggressive US interest rate hikes in decades which is increasing the demand for the dollar as it offers a higher yield.
Gold provides no yield.
So, the strengthening dollar outweighs inflation worries.
Today, however, inflation risk peaked in Asia, according to Morgan Stanley, as supply imbalances are reversing and food prices are declining.
In addition, sliding oil prices ease inflation concerns.
So, will the dollar continue to fall and allow gold to rally? We don't think so.
The dollar completed a bullish pennant, which helped it also achieve a larger Symmetrical Triangle. A dollar decline is nothing more than a natural return move, as the shorts finished covering after an upside breakout.
I expect the dollar to keep rallying, forcing the gold price lower.
The yellow metal plunged through its uptrend line since the March 2021 low, along with its Falling Channel. However, the price has neared the channel's bottom, which increases the risk of a corrective rally within the downtrend, especially having stopped at August/September 2021 lows.
The Red X marks the convergence between the short-term and long-term uptrend. A return to there would offer an exceptional shorting opportunity, but the price won't necessarily bounce that far high.
Trading Strategies
Conservative traders should wait for a return move toward $1,800, followed by signs of distribution, before risking a short position.
Moderate traders would short upon the rally without waiting for confirmation of resistance.
Aggressive traders may enter a long contrarian position. They might want to wait for evidence of accumulation, all according to their risk aversion. Then, if the price returns higher, they will join the rest of the market with a short.
Trade Sample - Aggressive, Long Position
- Entry:$1,734
- Stop-Loss: $1,729
- Risk: $5
- Target: $1,759
- Reward: $25
- Risk-Reward Ratio: 1:5
Trade Sample - Aggressive Follow-Up Short
- Entry: $1,781
- Stop-Loss: $1,801
- Risk: $20
- Target: $1,681
- Reward: $100
- Risk-Reward Ratio: 1:5
Note: These are just samples, not the analysis. That is in the text. If you did not read it, please don't comment. I am not in the business of fortune-telling. According to technical analysis, I am providing a prognosis based on my interpretation of the qualities of supply and demand. However, even if I'm right, it does not necessarily mean this sample will work out. Trading is a statistics-based game. It would help if you traded according to a consistent strategy to catch up with statistics. Happy trading!