Gold tends to break uptrend

Gold prices, as expected late last week, continued to adjusting downward from a nine-month high hit on January 26, just below the 1950 level. The bears took more aggressive action today, taking it right to the uptrend line, which stretches from the lows of early November. So the question is – will the trend break out?

In fact, there is no wonder in the main precious metal getting adjusted. The impressive growth shown in January made profit looking very attractive, especially ahead of this week's most important events  – meetings of the world's leading central banks.

Tomorrow, on Feb. 1, the Fed will decide on its further monetary policy. There is no doubt that interest rates will increase by another 0.25%, but the following press conference by Chairman Jerome Powell may contain some unpleasant surprises. Market participants afraid that Powell's speech may be more hawkish than expected.

Further interest rate hikes are getting more evident, especially with a close look at the dollar index chart, that resumed its growth tendency on Jan. 26. – the same day when gold set a peak level and then went into correction. The inverse correlation between gold and the dollar index almost always works, so the precious metal may go back to growth after the hype around the meetings of the central banks will calm down – not earlier than Thursday evening.

Currently, gold sellers are attacking the rising trend line. If the "bears" get succeeded, their next target will be the 23.6% Fibonacci retracement level (1870). The technical indicators turned down, though they are far from being oversold, so there are more reasons for the gold to continue the correction. A good time to open a short position will be when the price can fall below the 1900-1905 range.

The following version of trading strategy might be offered:

Sell gold in case the uptrend is broken (1900-1905 range). Take profit – 1870. Stop loss – 1920.

Traders may also use Trailing stop instead of a fixed Stop loss at their convenience.