After spending the first three days of the week in a flat trading environment, prices for gold finally showed a clear positive trend on Thursday. Quotes added almost 1.5%, reacting to the release of U.S. inflation data for December. As a result, the price for gold exceeded the round level of 1900 for the first time since last May. After reaching such an important level, many traders would probably want to fix the positions at least partially, and we will see a small correction.
A correction is even more likely because the inflation data actually do not show a serious improvement in the situation. Overall price growth slowed from 7.1% to 6.5% according to market expectations, and the base rate slowed from 6% to 5.7%. However, the fall, as in the previous few months, was caused primarily by cheaper energy and provisions. And at this time, the most stable components of inflation - services (especially those related to housing) continue to rise in price.
Labor market is also not good for gold and it is still strong. Weekly jobless claims fell to 205,000, which is historically very low. Thus, the Fed still has enough reasons to continue the cycle of tightening monetary policy, which will put some pressure on gold prices.
Although the overall positive view of the dynamics of gold prices remains unchanged, right now there is a complex of factors for a moderate correction. The Stochastic indicator also favors a slight decline after a good growth since the beginning of the year. As a target for the correction the level of 1870 can be mentioned, which should be checked for strength after the last rise.
At the same time, such a decline will not lead to a break in the medium-term upward trend, but will only remove the overbought condition in the technical indicators. After the correction, buying gold again can be considered in order to achieve new peaks.
The following trading strategy option can be suggested:
Sell gold in the range of 1890-1905. Take profit – 1870. Stop loss – 1915.
Also, traders may use Trailing stop instead of a fixed Stop loss at their convenience.
This content is for informational purposes only and is not intended to be investing advice.