For gold prices, the past week was the most unsuccessful since the end of September. The yellow metal lost almost 3%, quotations fell to the level of $1935 per ounce. As part of the current correction, the price reached the Fibonacci level of 38.2% and a reversal may start from it in the near future. Technical factors speak in favor of growth, but the fundamental picture should be considered in detail.
The comments by Jerome Powell prepared for delivery to an International Monetary Fund research conference pushed down the gold prices. The head of the U.S. regulator has traditionally promised to adhere to a cautious approach in changing the monetary policy. At the same time, if the return of inflation to the goal of 2% takes too much time, the Fed is ready to further increase the level of interest rates. Powell's speech was seen as moderately hawkish by the participants of the currency market, so they accelerated sales of the yellow metal.
Now the attention of traders is focused on the October CPI report. The data will be published tomorrow. Economists polled by Reuters had forecast the core inflation would gain 0.3% on monthly basis and 4.1% on a year-on-year basis (similar to the figures for September). At the same time, the overall inflation rate is projected to slow from 3.7% to 3.3%. If expectations are met, demand will return to the precious metals market.
According to ANZ analysts, the macroeconomic environment is becoming increasingly favorable for gold. In addition to demand driven by geopolitical risks and central bank purchases, the yellow metal may receive support from other factors. The end of the monetary tightening cycle in the U.S. may lead to lower U.S. bond yields and a weaker dollar. This will support investment demand for the precious metal, according to ANZ.
On the daily chart of gold, the lines of the Stochastic indicator are close to the oversold zone. Soon they will form a full-fledged signal to buy the yellow metal. The nearest target of the bulls could be a return to the Fibonacci level of 23.6%, near the 1960 mark.
The following trading strategy can be suggested:
Buy gold at the current price. Take profit — 1960. Stop loss — 1910.
Traders can also use a Trailing stop instead of a fixed Stop loss at their discretion.