On Friday, gold renewed its 2023 low, as the price dropped below 1820 at one point. However, a strong drawdown buyout took place after that, and the yellow metal managed to finish the last trading day of the previous week with a slight gain. A rise above 1840 is good news for the bulls, but we shouldn't expect the main precious metal to fully resume its solid uptrend that was in place from November to January.
The recent news, related to the strong U.S. labor market and inflation declining too slowly, has noticeably lowered the optimism in the gold market. Investors are changing their outlook on U.S. interest rate levels. A cycle of monetary policy tightening is now expected to take longer and may be continued after spring.
Analysts at Commerzbank cut their gold price forecast for the first half of 2023 to $1800 an ounce from their previous estimate of $1850. Analysts acknowledge that hopes for a soon ending of a series of rate increases in the U.S. were premature. This explains why a troy ounce of gold now costs almost $120 less than in early February. Many investors suffered serious losses, and now they will probably be more cautious.
The most significant impact on Commerzbank's worsening outlook for gold is a rise in U.S. bond yields. Some Fed members believe that they will have to continue aggressive rate hiking to curb inflation. Market participants are now weighing a prospect of the U.S. key rate hike of 0.5% in March, with the rate peak expected to be 5.5%.
The current upward rebound in gold prices may continue up to a range of 1850-1855. Afterward, another wave of decline is likely to occur, as the 1800 level has still not been tested.
The following trading strategy option could be offered:
Sell gold in a range of 1850-1855. Take profit – 1825. Stop loss – 1870.
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.
