Despite rising for the fourth day in a row, it has been placed among multidirectional basic factors, including the slowdown of the world economy, strengthening and current Fed policy on interest rates. Understanding the various drivers and options can help predict the direction of the next step.
After reaching the local bottom in August 2018, at USD 1160, gold was able to recover thanks to its safe harbor status. In May, he received an additional boost to expectations of easing Fed interest rates, which usually leads to a decline in the US dollar and an increase in the relative value of gold.
Yesterday's profit came after the official announcement by Fed Bullard that the regulator may be forced to compensate for the bearish risk associated with trade conflicts and suppress inflation.
But gold began to grow on Thursday, long before Bullard's comments. Around mid-August, the precious metal was in the side, as investors expected new signals regarding the Fed's approach to interest rates. At the last meeting, the opinions of FOMC officials were divided, which reduced the chances of new rounds of interest rate cuts (although Fed boss Jerome Powell continues to reiterate that the Fed is monitoring the situation and is ready to continue policy easing if necessary).
Particularly impressive is the fact that gold grows even after strengthening the dollar for the third day in a row.
Why does the dollar become more expensive if the precious metal rally is the result of expectations of a rate cut that would hurt the US currency?
Perhaps the reason is increased demand from abroad, where recession is almost inevitable, and US government bonds with real Klondike yields generate almost zero or even negative interest rates.
Given the conflicting dynamics, what can you expect from gold?
The current rise, which led the gold to three-week highs, slowed down. The current balance of supply and demand reflects a lack of consensus. The product is still on the upward trend (from the bottom in May), but the aforementioned side trend has led to the emergence of the H&S reversal pattern, the collapse of which will mean market reversal.
However, the rally took away the price of the "line in the sand", which costs about USD 1,480. Nevertheless, the rates stumbled over the highs of September 12 and August 13, which coincided with the dashed trend line.
In other words, a rally can simply participate in creating an inverse pattern that completes growth.
What to do?
Conservative traders they will either wait for the "neck" line to break down or for a new maximum that will confirm the upward trend. At the same time, they should use a 3% filter to avoid reversal, and wait for the trend to confirm the appropriate consolidations at these reversal points.
Moderate traders it can wait for the same triggers as conservative investors, but to rely on discards to broken levels to maximize profits, you don't have to wait for confirmation of support or resistance.
Aggressive traders they can play against the market and sell, taking advantage of the proximity of the 12 September high resistance line and right arm.
Example of a short position
Admission: 1522 USD
Stop Loss: 1527 USD – above the maximum of 12 September
Risk: 5 USD
Goal: 1507 USD – growth line and support for "congestion"
Profit: 15 USD
Risk / return ratio: 1: 3