Gold prices have been depressed for while, dropping around 1.3% between the start of 2019 and May 28, but the tide appears to have turned. Gold futures have gained 2.7% since then.
Investors are now returning to the traditional safe haven in droves. There were several reasons the yellow metal lost its luster for a period: the strengthening dollar made gold more expensive, as the metal is priced in USD and the dollar’s rising interest rates paid its holder a yield, something gold does not do. At the same time, confident investors sought growth, not capital preservation.
But now the dollar is falling, making gold cheaper. Investors are betting on the Fed cutting rates, because of the slowing economy, and nervous investors are looking for safety.
The technical charts make it clear that the precious metal is back in business, with various patterns providing buy signals.
Gold broke out of its downtrend and entered an uptrend, suggesting traders expect prices to resume higher. On April 16, the price of the precious metal completed a H&S top, as the balance of supply and demand tilted in the favor of sellers.
However, plunging yields pushed the dollar lower and gold higher, causing a pattern failure. When the H&S pattern blows out it means that many traders who counted on it gave away their money to the mavericks or lucky accidentals on the previously wrong side of the trade, fueling a rally.
The MACD’s short MA crossed above the long MA, as well as the zero line, providing a dual buy signal. The RSI crossed above its support-resistance level since December.
Trading Strategies
Conservative traders would wait for a downward correction, which demonstrates support of the new trend.
Moderate traders may wait for a pullback to the top of the falling channel, at around $1,300 to risk a long position.
Aggressive traders may buy a dip to the $1,309 level, today’s low.
Trade Sample
- Entry: $1,310
- Stop-Loss: $1,309, below today’s low
- Risk: $1
- Target: $1,320, round number below March peak
- Reward: $10
- Risk-Reward Ratio: 1:10
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