The gold price, charted above, has been staying in a range between 1940 and 1980 for more than a month. Moreover, in recent days the gold price rebounded less steeply from the support of 1940, signaling a higher possibility of the breakout of the flat. It takes a significant change in the news background to confirm the breakout of the level of 1940, but there will be at least one more test of this support level.
It is unlikely that gold market participants will take any actions ahead of tomorrow's speech by the U.S. Federal Reserve Chairman Jerome Powell. Investors await additional signals regarding the future course of monetary policy. If Powell takes a hawkish stance, gold prices could face severe pressure in the second half of the week.
The significant negative factor for the gold prices may also be lower demand from the Chinese market. After very high yellow metal purchases growth rates in March and April (+44% and 37% year-on-year), the May figures showed an increase of only 24%. Moreover, at the beginning of spring physical gold was trading at a premium of almost $50 to the world market price, but now some traders from China are compelled to give discounts.
Apparently, the surge of gold purchases in China caused by pent-up demand after 3 years of anti-COVID restrictions is gradually coming to naught. As the economic growth slows down, people are becoming more cautious about spending on non-essential goods, especially if we take into account the price for gold in yuan, which is near the record highs. India is seeing similar trends.
There is still time before Jerome Powell's speech tomorrow, and the gold prices may return to the middle of the flat — the level of 1960. Such movement of the price can be an interesting opportunity for opening short positions. The target is a return of the gold price to the support level of 1940.
The following trading strategy can be suggested:
Sell gold in the range of 1955–1965. Take profit — 1940. Stop loss — 1980.
Traders can also use a Trailing stop instead of a fixed Stop loss at their discretion.