Gold edges towards the trap door Part II

In our last update on gold a month ago, we were watching for a false break below range lows at $1670 to set up a rebound. While the false break lower did not eventuate, a rebound to $1807 followed.

In this article, we update why the rally in gold faltered and what comes next as gold again eyes the bottom of its 28-month range.

Gold undone again by the rampant dollar

The decline from the August 10^th $1807 high to last night’s $1727 low, has coincided with an almost 4% rally in the U.S dollar index. As noted previously, while correlations can ebb and flow over time, gold is typically inversely correlated to the U.S dollar. When the U.S dollar rallies, gold generally declines and vice versa.

After a period of positive correlation in March and April, the negative correlation between gold and the U.S dollar reasserted itself in July and is sitting around -0.60%. Based on the strength of the correlation, the rally in the U.S dollar over the past month has undercut the rally in gold.

What about yields?

While gold at times holds a negative correlation with real yields, including into the end of last year and during the first half of 2022, it’s a correlation that is not currently in play. If it were, gold would be trading significantly lower, towards $1000.

What do the charts say?

Gold has been ranging trading in a wide range between $1670 and $2070 for the past twenty-eight months.

The bottom of the range is again coming into play. Should gold show tentative signs of holding and bouncing from this support zone, the expectation would be for a rebound back towards $1807, with scope to the middle of the range at $1870 and longs should be considered.

Aware that should gold see a sustained break below $1670/60, it would open up the next downside levels at $1557 and then $1451.

Source Tradingview. The figures stated are as of August 23 ,2022. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the company you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.