Yesterday's trading in the gold market was held under the sign of sharply increased volatility. Prices of the yellow metal were growing rapidly, trying to recover from Wednesday's drawdown, but by the end of the trading session all the bulls' gains came to naught. Today, the price of gold has updated its monthly low, closely approaching the level of $1910 per ounce. The previous growth wave in gold started from these levels at the end of June-beginning of July. There is a high probability of a similar development of events this time.
Yesterday's growth momentum in gold was provoked by the release of statistics on U.S. inflation for July. The data turned out to be a bit better than expected: the overall price growth rate increased from 3% to 3.2% (with the forecast of 3.3%), and core inflation slowed down from 4.8% to 4.7% (the forecast was for no change). So why did the initial optimism of market participants last only a few hours?
Perhaps traders fear a new spike in inflation due to the rise in oil and gas prices in recent weeks. Such a risk does exist, but it should be noted that a year ago the cost of energy resources was even higher (in the case of gas - almost 4 times). Accordingly, year-on-year price growth is unlikely to accelerate significantly. One way or another, many Fed officials are already openly talking about the end of the rate hike cycle, and a one-time spike in inflation is unlikely to make them reconsider their position.
Meanwhile, the summer season of low demand for gold is coming to an end. Consumers of the yellow metal in China, who have reduced their purchases in recent months, may return to the market. From the perspective of the World Gold Council, retail demand for gold in China will show a revival as the national holidays in early October approach.
The Stochastic indicator on the daily chart of gold has fallen into the oversold zone for the first time since late May. This is an important technical signal that the downtrend is about to reverse. If gold prices return to growth, the first target will be the 1935-1940 range.
Consider the following trading strategy:
Buy gold in the 1910-1915 range. Take profit 1 – 1935. Take profit 2 – 1940. Stop loss – 1900.
This content is for informational purposes only and is not intended to be investing advice.
