Gold continues to trade in an extremely narrow range as the precious yellow metal reacts to two opposing forces; rising interest rates and inflation. However, recent falls in gold prices have been superficial and short-lived at best. Most importantly, the gold price has remained above a key Fibonacci-based support level. The data set used for this Fibonacci retracement set contains a long period of data. It starts at $1678, which is the lowest point created in August 2021, to this year’s high of $2077. This dataset covers a price range of approximately $400.
Chart number one is a daily chart of the gold futures continuous contract. It currently represents the most active contract of August 2022. After reaching this year’s high in March, a deep correction followed with gold moving from $2077 to $1785. Gold fell a total of $292 or 15.12% in about 2 ½ months. This correction was directly attributable to market participants’ focus on dollar strength due to rising interest rates and yields.
What followed after gold hit $1785 was an initial rally to $1881 that found resistance near the 50-day moving average and then corrected to around $1807 before establishing a base and regaining some value.
Chart number two is a daily candlestick chart of gold magnified to describe the most recent price activity. Gold traded as low as $1830.70 today, which is $0.10 above the 61.8% Fibonacci retracement. It is widely recognized among technical traders that a deeply acceptable correction will typically move towards the 61.8% Fibonacci retracement and start moving higher, rekindling the rally that occurred before the correction.
If gold is able to continue above the key USD 1,830 support level, it will encounter minor resistance near the 200 day moving average which is currently fixed at USD 1843.20. Above the 200-day moving average, the next level of resistance gold could face if it continues to rise from this price point would be around $1860, which is the highest reached on both Thursday and Friday of last week. The major resistance is currently set at $1872.60, which is based on the shortest-term 50-day moving average.
If gold futures can hold $1,830, it will either form a base at this price and consolidate, or start another rally from this base. With the next FOMC meeting scheduled for late July, market participants will prioritize their focus on inflation. If inflation continues to run high, we can expect gold to move to higher prices. However, if inflationary pressures begin to ease, we can expect gold to remain under pressure, resulting in lower prices. I believe that inflation will continue to run high and not only persistent, but also remain high.
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