The gold price failed to stay at new highs yesterday and went down on the lower timeframes. The main obstacle was the technical levels and the statements of the Fed. Two Fed officials said that the central bank will probably need to raise interest rates above 5% before stopping and maintaining them at high levels to fight inflation. The dollar has strengthened, putting pressure on goods priced in U.S. currency.
Central banks continue to fight inflation most countries haven't reached the peak of interest rates yet.
Bloomberg Economics identified a peak of global rate increase at 6% in the third quarter. By the end of this year, this mark should reach 5.8%. This would be the highest level since 2001, exceeding the 5.2% level at the beginning of the year. Specific decisions by central banks can become difficult to make. Rates are getting closer to the limit territory and risk to reduce demand so much that the economy could fall into a recession.
Central banks are not in a hurry to announce a victory over inflation and will continue raising rates this year, which is risky for the price of gold. The current price is reasonable and has upside potential if inflation is really overcome. Any suggestion of its rise could reduce gold's upside potential.
Such a suggestion is given by Tokyo today:
On Tuesday, according to the Interior Department, consumer prices in the capital, excluding fresh products, rose by 4% in December as food and energy prices continued to rise and the majority of traceable goods became more expensive. Economists predicted growth by 3.8%.
According to the technical analysis, the price of gold reached its key resistance, which acted as a barrier to further growth of the metal several times. Both of these areas are marked with ellipses on the graph. It is assumed that this level will act as a temporary barrier to the growth of gold once again.
More global analysis shows RSI divergence. The indicator is in a downtrend and gold prices are renewing local highs. This could indicate a potential correction in gold.
Getting back to the current picture, we noticed an acceleration in the price of gold in the last few days, which led to a breakdown of the rising upward trend. On the background of the correction, this rising trend may act as a support for the quotations. Thus, the boundary of the rising trend, which is the level of 1,850 dollars, will be the target for the decrease.
A stop-loss can be set a bit higher than the local highs of recent days around $1,884.
Decrease in the price of gold:
Take profit – 1 850
Stop-loss – 1 884
This content is for informational purposes only and is not intended to be investing advice.
