Gold rallied on the U.S. GDP statistics yesterday, hitting a 9-month high. In response to the GDP data release, the price has seen a pullback from the local highs, with the correction proceeding on Friday. Gold is still attractive for buying, although the market players are likely to keep their positions up and look for lower prices.
There are both fundamental and technical grounds for the recent rollback. As for the statistics, it showed the U.S. GDP growth of 2.9% in the Q4 2022 compared to 2.6% expected. Gold has been affected by positive GDP data as it allows the Fed to keep raising rates, while reducing the risk of a recession. These factors could put the brakes on gold's uptrend.
Gold buyers have also been upset by initial jobless claims, sliding down to 186,000 last week. Strong resilience in the U.S. economy means that risky assets may be attractive, and gold as a safe haven asset seems to be in less demand.
When it comes to technical factors for the drop in gold, there is a sufficient amount of them. It is possible to discern a strong overbought situation to be removed in almost all the technical indicators. Besides, the last 2 candlesticks on the daily chart formed a "bearish engulfing" pattern, strengthening chances to continue the correction.
The short-term target for gold sellers will be 1910, and when it is reached, it will be feasible to break the round level of 1900 from upside down. In this case, the uptrend line from the early November lows is going to be tested, and the activity of "bulls" willing to redeem this drawdown is likely to increase. That is why one should not be keen on short positions, as gold is still attractive in the long run.
The following trading strategy can be suggested:
Sell gold at the current price. Take profit 1 - 1910. Take profit 2 - 1900. Stop loss - 1935.
Traders may also use Trailing stop instead of a fixed Stop loss at their discretion.
This content is for informational purposes only and is not intended to be investing advice.
