After a strong rise by more than 5% in just one week, the gold prices finally showed a correctional pullback yesterday. Fundamental factors are now generally favorable for the main precious metal, though the recent sharp surge has led to the price going too high above the line of a midterm growing trend, while the RSI indicates entering an overbought zone. So, the correction is likely to take more than one day.
After a release of new data on U.S. inflation, it’s time for economic statistics from other countries. Thus, this week we’ll get new information on a pace of price growth in the EU and Great Britain. There will also be a release of new data on industrial production and retail sales in the U.S., which might cause reevaluation of the Fed’s further actions during its meeting on February 1. And finally, the Bank of Japan will become the first major world regulator to hold a monetary policy meeting in 2023, with the meeting being scheduled tomorrow, January 18.
Market participants expect these data to give important signals, and special attention will be drawn to any signs of recession coming in national economies. It will aid in estimating the degree of a slowdown which the global economy might face due to monetary tightening by central banks. It’s suggested that possible recession might create favorable conditions for gold, especially if it causes a slowdown or even a pause in the rate hiking cycle.
At the same time, many analysts consider the optimism, caused by the U.S. inflation data for December, to be superfluous. A decline in pace of price growth from the last year’s maximum of 9.1% to the current level of 6.5% is the easiest part of the Fed’s work. The lower the inflation, the more difficult it will be to bring it to the target of 2%, as the most steady components of the Consumer Price Index, which are services, continue its rise in price.
The first target of the current correction in gold — the level of 1895. If this target is reached, then the movement might continue to the level of 1875. Then a new wave of growth may be expected.
The following trading strategy version might be offered:
Sell gold at the current price. Take profit 1 – 1895. Take profit 2 – 1875. Stop loss – 1925.
Traders may also use Trailing stop instead of a fixed Stop loss at their convenience.