Gold loses shine ahead of Fed

As the US dollar strengthened and global stock markets continued to stay supported on Monday, the price of gold resumed its sharp retreat from last week’s one-year high around the $1280 resistance level.

Since mid-December, when gold rebounded with a clear double-bottom pattern off a new multi-year low around $1050, the precious metal has been rising swiftly in price for nearly the past three months. The latest culmination of this climb occurred within the past two weeks after price broke out above a key triangle pattern near its highs. Shortly after, a double-top high around the $1280 resistance level was formed, which provided an indication of potential market resistance to further appreciation.

After reaching up to hit that high late last week, gold has pulled back sharply to end up below its noted triangle breakout level. This retreat has occurred partly as a result of the recent rally in stocks, which reduced “safe-haven” flows towards gold, but more importantly due to a relatively well-supported dollar. As gold is denominated in US dollars, a strong inverse correlation generally exists between the two.

A major economic news event this week has the strong potential to affect both the dollar and equity markets in a significant way, and therefore the price of gold as well. Among several other central bank monetary policy statements this week, Wednesday’s US Federal Reserve statement and press conference should provide more clarity as to the Fed’s outlook on future interest rate hikes, especially in light of last week’s aggressive easing measures announced by the European Central Bank (ECB). If the Fed maintains a relatively hawkish outlook despite the ECB’s actions, the US dollar could continue to be supported and gold could slip further. In the event that the Fed has become pressured to take on a more dovish stance, however, the US dollar could break down, prompting a potential rebound for gold.

From a technical perspective, the price of gold has formed somewhat of a bearish divergence against technical momentum indicators near its noted $1280 double-top highs. In the event of a further pullback that results in a sustained breakdown below the $1225 support level, further losses for the precious metal could begin targeting major downside levels at $1190, which is also around the key 38% Fibonacci retracement of the noted three-month bullish run, and then the $1170 support level. To the upside, in the event of a rebound and then breakout above the recent $1280 double-top, a continuation of the three-month uptrend will have been confirmed, with further upside resistance targets at $1300 and then $1345.

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.