Gold buy

Gold's sharp drop gives bulls a chance to build up their positions

07 February 2023 72
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At the end of the previous week, gold was under intensive attack from the bears, which resulted in the loss of more than half of the increase in the price since the beginning of the year. Although the correction scenario was quite expected, the speed and depth of the decline is quite surprising. Probably there were massive margin calls, otherwise gold could hardly have lost almost $100 of its value in less than 2 days.

Seeing the obvious redundancy of the happened failure, today the market participants started to buy out the drawdown. By the current moment, gold prices recovered to the level of 1870. Considering the low of Friday, which was dangerously close to 1860, it is important for gold to get above 1900 again as soon as possible, otherwise the picture of a broken uptrend might encourage the sellers to start a new sell-off.

Obviously, the "bears" got a boost of energy after the publication of statistics on the U.S. labor market on Friday. Data showed that non-agricultural jobs increased by 517,000 in January, significantly exceeding forecasts. The unemployment level fell from 3.5% to 3.4%, still representing that the labor market is too stable.

Such statistics obviously will not make the Fed management glad, and the U.S. regulator will have to raise interest rates again in March. Nevertheless, the increase will obviously not exceed 0.25% and will not radically change the situation with the attractiveness of gold relative to dollar bonds.

Anyway, the cycle of tightening of monetary policy is coming to its end, which means that interest in gold will be maintained at a fairly high level. A confirmation of this fact can be seen if you look at the data on massive purchases of precious metals by central banks.

To build up positions in gold with the expectation of renewal of growth, it is better to look at the level of 1870. The first target for the recovery of gold quotations will be 1900, and after it is reached, the level of 1915 might be the target.

The following trading strategy option can be suggested:

Buy gold in the range of 1865-1880. Take profit 1 – 1900. Take profit 2 – 1915. Stop loss – 1855.

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

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