Gold buy

Gold drawdowns will be redeemed

25 January 2023 183
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Gold resumed its local maximum yesterday, exceeding the 1940 level for the first time since April 2022. Wednesday's trading started with a pullback that could be used to build up long positions in gold, as price forecasts are still positive for the main precious metal.

Today's pullback in gold prices, besides profit taking, is also triggered by negative inflation data released in Australia and New Zealand. Prices in New Zealand remained at 7.2%, although a slowdown to 7.1% had been expected. In Australia, statistics showed a sharp rise in inflation from 7.3% to 7.8%, worse than forecasts.

There are some fears that the cycle of monetary tightening by central banks will not be stopped soon, as high prices rally triggers a need for more rate hikes. Although Australian and New Zealand economies are not as powerful as the U.S., EU or China, they were still able to put a negative spin on the gold market.

Nevertheless, gold is backed by fears about a possible recession in the global economy. Yesterday's PMI data showed some improvement in business activity in Europe and the U.S., while the downturn in the UK is getting deeper. The U.S. PMI, despite January’s rise compared to December’s one, is still well below 50, dividing growth in business activity from a decline.

Forecasts on the dynamics of gold suggest that the growth will continue within the current uptrend, so major drawdowns are likely to be redeemed. The current correction might be limited to the 1915-1920 range, and then the upside will be resumed. The RSI has unloaded some overbought and now it is not hampering a new upward momentum to 1950.

The following trading strategy can be suggested:

Buy gold in the 1920-1925 range. Take profit 1 - 1940. Take profit 2 - 1950. Stop loss - 1915.

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.

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