Gold sell

Positive GDP data may trigger a correction in gold

26 January 2023 172
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Gold continued to rise on Wednesday as the dollar weakened. Investors keep a close eye on a series of upcoming economic data from the U.S. that could weigh on the Fed's meeting outcome next week. 

The U.S. economy has probably sustained strong growth in the fourth quarter as consumers increased spending on goods. But the momentum seems to have slowed down by the end of the year as higher interest rates undermine demand.

Economists polled by Reuters said GDP growth was likely up 2. 6% on a year-over-year basis in the previous quarter after accelerating by 3.2% in the third quarter. Estimates ranged from 1.1% to 3.7%.

As the GDP data gets better, the Fed has a stronger position to continue its rate hike cycle. This scenario is fundamentally negative for gold prices, so there is significant risk of a correction after the extended rally this year.

 

One should also keep in mind the uncertainty about China's reopening. Analysts suggest that there will be two forms of inflationary shock that China is going to transmit to the rest of the world this year.

1.   Initially, the supply of goods is likely to be difficult as workers with COVID-19 are required to stay indoors. 

2.   Then comes the demand shock as Chinese consumers resume spending, driving commodity prices higher.

 

Based on the technical analysis, gold is holding around the upper limit of the uptrend. It is possible to open short positions from the current price with a target to the lower limit of that trend. In this case, the target will be around $1926.

Stop-loss can be placed short, at the upper limit of the uptrend. However, due to the GDP statistics coming out today, there will be increased volatility of all the instruments. 

So, it is worth taking into account the risk of dramatic non-market fluctuations and put a stop higher at $1,967. This level used to be a resistance one when the gold price updated its historical highs in 2022.

The RSI indicator is above 80 points on the daily timeframe, showing that the asset is overbought. There is a similar situation on the 1-hour timeframe.

 

Gold is expected to fall in price:

Take profit - 1 926

Stop-loss - 1 967

This content is for informational purposes only and is not intended to be investing advice.

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