Conditions may have turned favourably for gold bugs

Over the past 48-hours conditions have turned favourably for gold traders. Risk-off flows stemming from the EU’s decision to ban Russian oil imports helped support prices ahead of yesterday’s FOMC meeting. And the US dollar was arguably overstretched at it multi-year highs along with expectations for 75bps from the Fed, which Jerome Powell has since quashed. Given inflation remains rampant and the Fed aren’t as aggressive as some pre-emptive bulls had hoped, some will see gold as an inflation hedge once again.

Gold’s rise is not just a weaker-dollar story, as it has been rising in tandem against all major currencies following the Fed meeting. But it has also performed well this year overall. Thanks to the BOJ’s forever-dovish policy it has risen 17% against the Japanese yen whilst also achieving double digits against the Swiss franc, euro and pound. Gold has even out shined silver with a 13.3% YTD rally. But perhaps a bigger show of strength is it has risen 4% this year against the mighty US dollar, which is pretty good considering the dollar briefly tapped a 20-year high last month and yields have been screaming higher with it. Furthermore, large speculators had been trimming longs and increasing short exposure to gold futures these past weeks. And now is likely a time they’ll look to reverse those positions. In a nutshell, we’re now anticipate an upswing for gold against major currencies.

How to start gold trading

A quick look at our gold basket suggests an important swing low has formed for gold. Equally weighted against FX majors, the gold basket intends to remove the US dollar’s dominance on gold to better reflect the underlying trend for gold itself. Encouragingly we can see that it remains in an uptrend overall and has printed a potential swing low on Monday, just above 2040. Today’s price action in Asia is decisively bullish and we’re currently on track for the stochastic oscillator to generate a buy signal on the daily chart.

Gold (XAU/USD) has extended its bounce from the 200-day eMA and risen to a 4-day high. It’s also broken above the 1880 resistance zone we’d flagged as a pivotal level and reignited our bullish bias. Naturally, the post-FOMC rally has met resistance around 1900 but, as long as prices remain above the 1880 area, we are now anticipating a break above 1920 to signal trend continuation. And a close above 1920 would be significant as it then sees prices back above last week’s swig high and the June 2021 high.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.