Gold bulls are fixing profits

As it was expected at the beginning of the week, the gold price continued its surging above the round level of 1900. The price just slightly missed the level of 1915, at which the buyers gradually started fixing the very good profits gained in just 3 days. By this moment, the prices have rolled back to the level of 1900, and the volatility is slowly weakening. The bulls will definitely wait for any opportunity to participate in a new surge of gold prices, but this requires a more serious correction.

Yesterday's publication of the U.S. inflation data for February became a trigger for the correction in gold. A major part of the released statistics has met the expectations of market participants: the annual rate of inflation slowed from 6.4% to 6%, and the monthly inflation rate decreased from 0.5% to 0.4%. However, the core indicator, which doesn't take into account the most volatile CPI components such as food and fuel prices, showed a higher price growth than the forecasted value (0.5%, while the expectations were 0.4%).

The recent problems in the U.S. banking system may indeed force the Fed to reconsider its future course of action on interest rate hikes. However, the risk of accelerating inflation is still there, and a premature easing of monetary policy could lead to a new collapse in financial markets.

Some market participants expect the Fed to begin cutting interest rates this summer to limit the damage done to the banking system. At the same time, though, the regulator may follow the "separation principle," according to which a monetary policy is considered to be a separate issue from the state of the banking system. This would weaken the commodity markets, which have recently believed that the Fed's easing of monetary policy is coming.

The recent wave of growth in gold prices has brought the Stochastic indicator into the strongest overbought condition since mid-November. Thus, a certain pullback of prices is required, and the nearest targets for the correction will be the Fibonacci levels of 23.6% (level 1890) and 38.2% (level 1875).

The following trading strategy can be suggested:

Sell gold at the current price. Take profit 1 – 1890. Take profit 2 – 1875. Stop loss – 1915.

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