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Gold Analysis by FxPro

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Gold dipped to $1832 on Wednesday morning, pulling back to a critical support line in the form of the 200-day moving average, losing more than 11% from the peak levels reached in early March.

Gold has been under systematic pressure for the past month and a half amid a rally in the dollar. In addition to this increase in the underlying price, gold has been losing buyers amid a jump in US government bond yields said senior analyst from FxPro Alex Kuptsikevich.


However, it is too early to talk about a break in the uptrend in gold, but only a retreat into deep defenses ahead of essential data. Most of the time, the correlation between inflation expectations and long-term bond yields governs the dynamics in gold. Weak real bond yields lead to a pull in the precious metal as investors look to protect the purchasing value of capital.

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With high interest rates and inflation control, investors prefer to earn yields in bonds by selling off gold. A significant event for the gold outlook is today’s US inflation release. The market reaction to this event could be decisive for gold in the coming days or weeks.

Consolidation below $1830 on the day would be an essential bearish signal that could rapidly decline towards $1800. Moreover, there would be an immediate question of double-top formation through 2020 and 2022 peaks as an early signal of a long-term downward trend with a potential of $1200.

If gold manages to develop a pullback from current levels, we could see a sharp increase in buying over the next few days, as we did in early February and late November. But unlike those episodes, this time, the bears might not wait for a quick reversal, and a further rally would be an important signal that gold continues to claw its way out of the prolonged correction. In this case, the nearest stops might be the levels near $1900, and further, the market might quickly target a renewal of the historic highs above $2075 before the end of the year.
 
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A sell-off in the equity market and a new wave of flight to the dollar on Thursday provided the perfect combination to knock out gold, which slipped to $1810 in thin trading on Friday morning, falling to its lowest level since early February.

Right now, it’s up to gold to decide whether we see a double top formation or whether the bulls are gaining strength and liquidity ahead of a new multi-month rising momentum. The current decline in the price makes us keep a close eye on further developments.
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Yesterday, gold took a sharp plunge under the 200 SMA, which is often a bearish factor for the instrument. A consolidation of the week under $1830 would reinforce that signal as explained by Alex Kuptsikevich, a senior analyst from FxPro.

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This would open the way for another roughly 25% drop into the $1350 area, the area of the 2015-2018 highs. If we see an uptick in buyers’ in the hours and days ahead, we could say that gold is in a correction. Potentially, a reversal to the upside from these levels could signal the start of a new wave of long-term growth, the first impulse of which was in 2018-2020, followed by a prolonged wide side trend. A potential bull target, in this case, could be the $2500 area.
 
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