Gold sell

Gold reaches new highs but market seems way too optimistic

02 February 2023 181
Gold reaches new highs but market seems way too optimistic

The gold adjustment turned out to be short-lived again — the main precious metal lasted without updating local highs only 3 trading sessions. Yesterday the quotes' growth was renewed. Due to that, today the price went up above the level of 1955 for the first time since April 22, 2022. Despite positive expectations for the gold price, its current rise looks a bit excessive.

Gold's new 9-month highs coincided with the outcome’s publication from the first Fed meeting this year. As for the interest rate, there were no surprises — it was increased by another 0.25% to the range of 4.5-4.75%. The market participants were much more interested in Jerome Powell's press conference and the tone of his rhetoric.

In fact, there are no positive statements to be noticed in Powell's speech, although financial markets were literally gripped in optimism yesterday. However, this morning, the positive market sentiment is still evident. Jerome Powell finally admitted the inflation is getting more sustainable. Despite that, the Fed chairman is still convinced that it needs 1-2 more interest rate hikes before the US regulator can take a pause.

Besides that, Powell stated a possible rate cut is quite unlikely, at least until the end of the year. Although many financial assets continue to price in that direction. For gold, a rate-cutting scenario with still-high inflation would be highly favorable, but there is no real guarantee for that to happen. And the situation itself, when asset pricing is contrary to the Fed’s position, risks turning into big disappointments for many market participants in the near future.

The level of 1965 looks interesting in terms of making short gold positions. The adjustment could be implemented around levels of 1950 and 1940. As a gold's uptrend has confirmed its strength, it is not recommended to bet on its break-up for the time being, that’s why a moderate correction could be enough. 

The following version of trading strategy might be offered:

Sell gold on the rise to the level of 1965. Take profit 1 – 1950. Take profit 2 – 1940. Stop loss – 1975.

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

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

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