Chart Of The Day: Gold May Benefit Despite Rising Rates
Investing.com | Jun 30, 2022 10:13AM ET
Gold whipsawed between gains and losses and has now extended a sell on its fourth day. In a mirror image, the dollar is rising for the third day, which may explain why gold has slipped. In fact, the precious metal is on track for its steepest decline since early last year.
Such a rout makes sense in the context of quantitative tightening and rising interest rates, as such moves offer dollar holders a payout which gold does not provide.
Today's move in the gold price is a tepid response to yesterday's reiteration by the US, UK, and European central banks that they are willing to do whatever it takes to combat inflation.
It appears that despite the most hawkish shift in the US Federal Reserve's outlook, there is still ongoing demand that is supporting the gold price. This persistent interest in the commodity could be a combination of a bet that the Fed will chase up inflation and move away from slumping equity markets.
Let's see how this manifests on the chart.
The price is finding support for the second day at the bottom of its short-term rising channel since the May 16 low. This channel appears to respond to the long-term uptrend line since the Mar. 8, 2021 bottom.
On the other hand, the downtrend line since the Mar. 7 record peak represents investors who shifted funds from gold to the dollar.
Note that the 50 DMA plunged through the 100 DMA and is bearing down on the 200 DMA. However, if the channel bottom's support will endure, the 50 DMA will bounce off the 200 DMA in a bullish dance, showing how current pricing is again strengthening.
Given that the trendline from Mar. 8, 2021, is more than five times as long as the downtrend line since the Mar. 7 record peak—suggesting that much more interest in it—we will place our bets on it.
Moreover, the rising channel's support increases upward pressure. Finally, the price is smack on the bottom of the track and provides a rare risk-reward ratio for risk-takers.
h2 Trading Strategies/h2Conservative traders should wait for the rising channel to overcome the falling downtrend line.
Moderate traders could risk a long position if the support prompts accumulation.
Aggressive traders could jump in right now, buying on the support, provided they are willing to accept the increased risk proportionate to the higher reward.
Trade Sample
- Entry: $1,810
- Stop-Loss: $1,805
- Risk: $5
- Target: $1,850
- Reward: $40
- Risk-Reward Ratio: 1:8
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