Gold Holds Above Key Support Level in Light of Rising Interest and Yields
Gold continues to trade in an extremely tight range as the precious yellow metal reacts to two opposing forces; rising interest rates and inflation. However, recent declines in gold prices have been superficial and short-lived at best. More importantly, gold prices held above a key Fibonacci-based support level. The dataset used for this Fibonacci retracement set contains a long period of data. It starts at $1678, the lowest created in August 2021, up to this year’s highest value of $2077. This dataset covers a price range of around $400.
Chart number one is a daily chart of the gold futures continuous contract. It currently represents the most active August 2022 contract. After hitting this year’s high in March, what followed was a deep correction taking gold from $2077 to $1785. Gold has fallen a total of $292 or 15.12% in about 2.5 months. This correction was directly attributable to market participants focusing on dollar strength due to rising interest rates and yields.
What followed after gold hit $1785 was an initial rally to $1881, finding resistance at the 50-day moving average, then correcting to around $1807 before forming a base and regaining some value.
Chart number two is a daily candlestick chart for gold that has been enlarged to detail the most recent price activity. Today gold traded at a low of $1830.70, which is $0.10 above the 61.8% Fibonacci retracement. It is widely accepted among technical traders that an acceptable deep correction will typically go all the way to the 61.8% Fibonacci retracement and begin to rise, reigniting the rally that occurred prior to the correction.
If gold can hold above the key support level of $1830, it will find minor resistance at the 200-day moving average which is currently set at $1843.20. Above the 200-day moving average, the next level of resistance that gold could encounter if it continues higher from this price is around $1860, which is the high reached on Thursday and Friday of last week. Major resistance is currently set at $1872.60, based on the shortest 50-day moving average.
If gold futures can hold $1830, they will form a base at that price level and either consolidate, or start a new rally from that base. With the next FOMC meeting scheduled for the end of July, market participants will prioritize their focus on inflation. If inflation continues to rise, we can expect to see gold move towards higher prices. However, if inflationary pressures start to ease, we might expect to see gold continue to come under pressure, which will drive prices lower. I believe inflation will continue to rise hot and will continue to be not only persistent but high.
For those who would like more information, just use this link.
Wishing you as always good exchanges,
Disclaimer: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. This is not a solicitation to trade commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for loss and/or damage resulting from the use of this publication.