February was the worst month for gold since June 2021, as the main precious metal lost more than 7% in price. At the same time, gold has gotten closer to the round level of 1,800 over the past few days, where the number of traders aiming to increase their positions at declining prices has risen significantly. As a result, we saw a rebound which reached almost 1,845 yesterday. However, this fundamental picture now is unlikely to allow gold to return to a steady rise.
In previous weeks, gold was majorly pressured by the U.S. inflation data, still showing a high rate of price growth. Now it is Europe’s turn to report February’s preliminary data on inflation. Germany has already released the statistics, which is quite similar to the situation in the U.S. Price growth in Europe's leading economy has accelerated from 9.2% to 9.3%. If the E.U.’s general data confirm a new rise in inflation, it will have a negative impact on gold prices.
Fears of high inflation raise expectations of additional monetary policy tightening by the global financial regulators. Thus, the Fed with a 30% probability will increase rates by 0.5% at the bank’s next meeting on March 22, even though market participants considered this scenario nearly impossible a couple of weeks ago. As a result, 10-year U.S. Treasury bond yields are higher than 4% for the first time since November. Consequently, gold becomes less attractive compared to bonds.
The next important event for the gold market will be the release of the U.S. labor market statistics for February on March 10.
Currently, gold’s increase above 1,850 is unlikely, and there is a chance for opening short positions. Also, during the previous wave of decline the round level of 1,800 was not reached, and now bears will attempt even harder to reach it.
The following trading strategy may be offered:
Sell gold in the range of 1,830–1,840. Take profit 1 – 1,815. Take profit 2 – 1,805. Stop loss – 1,850.
Traders may also use a Trailing stop instead of a fixed Stop loss at their discretion.