This week, gold posted its worst sell-off since early February, moving up from 1855 to the 1805-1810 range over the past three days. But no lows have been updated, and the "bulls" tried to redeem at least a part of the drawdown yesterday. The first growth attempt failed, but a Doji candlestick appeared on the daily chart, thus signaling a trend reversal. Buyers may step up their activity in the near term, building up their positions at lower prices.
Prices of precious metals fell due to hawkish rhetoric from the Fed Chairman Jerome Powell. In his speech to Congress, he warned that persistent inflation and a tight labor market could push interest rates higher than the market expected. It sparked a rise in the U.S. Treasury bond yields, thereby strengthening the Greenback and lowering prices of commodity assets denominated in the U.S. currency.
Gold continues to be a major player in investors' portfolios, despite an ongoing cycle of Federal Reserve tightening. This is stated by Jeffrey Gundlach, CEO of DoubleLine Capital. According to Gundlach, gold will hold its dominant position even if the Fed raises interest rates by 50 basis points at its March meeting. Recent data suggests that the key rate at the upcoming session of the U.S. regulator is likely to hit the level of 5%.
The Fed Chairman's speeches are over and now the market is focused on the U.S. labor market report for February, coming on Friday. Preliminary data showed that job openings have already fallen from 11.234 million to 10.824 million. A cooling labor market could be a key indicator that the cycle of higher interest rates is nearing its end. And that would be positive for gold.
In case of a rebound upwards, the first target for gold will be 1835. If the price continues to rise then it could be the level of the previous local highs, i.e. 1855.
The following trading strategy can be suggested:
Buy gold in the range 1805-1815. Take profit – 1835. Stop loss – 1795.
Traders may also use Trailing stop instead of fixed Stop loss at their discretion.