Gold rally hampered by tough central bank stance

As it was expected in last week’s forecast, gold prices rebounded from the five-month low of 1885. The yellow metall reached the 1920-1925 range. Then the upward momentum stopped. It seems that in the current situation, the bulls do not have enough strength for more significant growth of gold. In this regard, the price could form a flat or return to the 1900 round level.

The upward trend in gold prices stopped with the beginning of the annual Jackson Hole Symposium. The heads of the world's leading regulators dismissed suggestions that they might raise the inflation target, which is now at 2%. Because of this, the struggle against excessive price growth will continue, thus keeping gold demand suppressed.

Fed Chairman Jerome Powell did not make it clear in his speech whether interest rates would be raised again or not. However, he warned that evidence of sustained price growth above the 2% target could serve as a basis for further monetary tightening. These comments dampened traders' expectations for the end of the US rate hike cycle.

At the same time, other representatives of the U.S. regulator took a more hawkish stance. According to the President of the Federal Reserve Bank of Cleveland Loretta Mester, another increase in interest rates in the United States will be necessary for the final victory over inflation. After that, monetary policy tightening is likely to be suspended. Deputy Governor of the Bank of England Ben Broadbent and ECB representative Martins Kazaks expressed the same hawkish opinion on the future of monetary policy.

The data about traders' positioning also confirmed the end of gold’s rally. Market participants quickly took profits, and as a result, the size of the net long position on gold began to decrease again. 

The Stochastic indicator has already breached the overbought zone and may soon give a full-fledged signal to sell gold. The price may hold off the recent lows, but it is unlikely to avoid another test of the 1900 level.

We may offer you the following trading strategy:

Sell gold at the current price. Take profit – 1900. Stop loss – 1925.

Also, traders can use a Trailing Stop instead of a fixed Stop-loss at their discretion.