Breakdown of 1860 support could take gold to the lows of the beginning of the year

Yesterday prices for gold were under pressure again, and lost almost 1% at the end of the trading session and came back to the support of 1860. On Monday the fall of quotations stopped at the level of 1860, and now it is very important for the bulls to maintain this level again. Otherwise, gold will open the way to the lows of early January this year.

It is important to note the unusual nature of yesterday's drop in gold prices, as it took place with a similar decrease in the dollar index. Usually gold and the dollar index are inversely correlated, that is, they move in opposite directions, and the fact that a cheaper dollar did not help gold to rise in price is a negative sign.

On the background of still "hawkish" statements of the Fed representatives, market participants are gradually revising forecasts about the future level of interest rates to increase. This could lead to continued pressure on gold prices, especially if the data on U.S. inflation next week will show a still high rate of price growth.

The main precious metal in recent months is supported by active purchases from central banks. However, market participants investing in ETFs for gold still don't share that optimism. The World Gold Council (WGC) reported a new outflow of 26 tons of gold from the ETF for January, amounting to $1.6 billion. This is the ninth month in a row of market participants reducing their positions in gold ETFs.

The short-term dynamics of gold now will depend primarily on the success of ending the current week above the 1860 support. If so, the upside targets of 1880 and 1900 would be relevant again. If prices go below 1860, it is more likely to move to 1830. The decreasing RSI supports this scenario.

The following trading strategy option can be suggested:

Sell gold at closing of the trading session below 1860. Take profit – 1830. Stop loss – 1880.

Also, traders may use Trailing stop instead of a fixed Stop loss at their convenience.