Gold prices are gradually losing its late August gains, approaching the level of $1,900 per ounce again. In case today's statistics on inflation in the U.S. will be worse than expected, the yellow metal's price may fall to the range of summer lows between 1,885 and 1,900. Such a decline in gold could be a good opportunity to build up long positions, especially since the scenario of a strong rebound has already been materialized more than once this year.
Data on rising prices in the U.S. is highly likely to cause gold to drop. According to Tim Waterer, Chief Market Analyst at KCM Trade, higher oil and gasoline prices will lead to accelerated inflation. This, in turn, will directly affect the Fed's decision on interest rates next week.
At the same time, some analysts believe that the Fed will no longer tighten monetary policy. Chantelle Schieven, Head of Research at Capitalight Research, forecasts inflation to remain in the 3–4% range over the coming years. Although the Fed and other central banks continue to claim a 2% inflation target, it will not be achieved without a full-blown recession in the economy. Therefore, regulators will have to accept higher price growth to avoid aggravating government deficits and problems in the real estate market.
Schieven also pays attention to the gold market condition. In her opinion, with the current dollar rate and high yields on U.S. bonds, the yellow metal should be $100-200 dollars cheaper. However, gold is surprisingly stable, and demand only increases during periods of price decline. Based on this, the best trading strategy is to buy back strong drawdowns in gold.
The Stochastic indicator has already given a signal to buy gold, but there are no other signs of price reversal yet. It is worth opening long positions when the price falls to the 1,900 level. After the rebound starts, the first growth target will be the 1,930 level.
The following trading strategy may be offered:
Buy gold in the range of 1,900–1,910. Take profit – 1,930. Stop loss – 1,885.
Traders may also use the Trailing stop instead of the fixed Stop loss at their discretion.
This content is for informational purposes only and is not intended to be investing advice.
