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Chart Of The Day: A Hawkish Fed Could Push Gold To $1,300 Within 6 Months

By Pinchas Cohen/Investing.comCommoditiesOct 13, 2022 06:10AM ET
www.investing.com/analysis/chart-of-the-day-a-hawkish-fed-could-push-gold-to-1300-within-6-months-200631024
Chart Of The Day: A Hawkish Fed Could Push Gold To $1,300 Within 6 Months
By Pinchas Cohen/Investing.com   |  Oct 13, 2022 06:10AM ET
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The dollar is hovering near 20-year highs ahead of tdoay's US CPI release, which the Federal Reserve may respond to with a fourth consecutive jumbo interest rate hike.

James Ashley, head of international market strategy at Goldman Sachs said on Bloomberg Television that "the Fed is not going to blink." Adding, "if they're going to make a mistake, they would far rather err on the side of being too hawkish."

The ever-rising interest rate is siphoning investors away from non-yielding gold.

Gold 4-Hour
Gold 4-Hour

The 4-hour pennant's downside breakout will signal a resumption of the selloff within the falling channel.

Here are the presumed drivers of the continuation pattern.

Short sellers are locking in profits after eight straight 4-hour session plunges. The preceding H&S top or reversal triangle—the difference is academic—triggered a selloff that caused bears' hearts to skip a beat. Sellers added to demand when covering shorts, while ongoing selling by either new or short sellers with stronger convictions keeps the price from rebounding. If supply continues once short sellers complete covering, gold will fall below the pattern. This downside breakout will signal interest to all—ex and current bears, wounded bulls, and undecided—order flows will push the price down another leg.

The preceding pattern developed at the falling channel's top, confirming its marked medium-term downtrend since the Mar. 7, $2,078.70 all-time high. Gold has been negatively correlated to rising yields, following the Fed's persistent tightening, to the detriment of fund managers, like Ark's Cathie Wood.

Target Measuring

Short sellers disrupted the short-term downtrend since the channel top, as they were catching their breath after the dizzying selloff. Now that they have regained composure, the downside penetration will reverse fear back to greed, pulling them back in. Therefore, the previous selloff statistically repeats itself.

The series of red candles began at the $1,722 high, ending $50 lower at $1,672. Therefore, traders expect another $50 fall from the pennant's breakout point, aiming at around $1,625, retesting a much larger potential bearish pattern.

Gold Weekly
Gold Weekly

Last month, gold fell below its 2021 lows, which were also the lows between the two record peaks of 2020 and this year. In other words, the yellow metal completed a massive double top.

Last week, the price rebounded above the neckline. However, as I outlined, the price failed to hold onto gains and is back down at the neckline levels.

Gold will reinforce the double-top outlook if the price falls below its Sept. 28, $1,618 low. Given that the pattern's height is $40, the breakout could test $1,300, as all the invested interest within the structure repeats itself with the previous floor turning into a ceiling. The length of time to achieve the double-top's target could be as little as six months, the length of time it took gold to fall each time it reached its record, and as long as two years, the time it took the pattern to develop.

Trading Strategies - Short

Conservative traders should wait for the price to close below the pennant's $1,667.90 low, which would include at least three 4-hour candles to remain below the pattern, then for a return move that retests its integrity.

Moderate traders would be content with a close below $1,670 and two 4-hour candles to remain below the range, then for a throwback for a closer entry, if not for trend confirmation.

Aggressive traders could short upon the first close below the pattern.

Aggressive Trade Sample

  • Entry: $1,672
  • Stop-Loss: $1,682
  • Risk: $10
  • Target: $1,632
  • Reward: $40
  • Risk-Reward Ratio: 1:4

Disclaimer: The author has no positions in any securities mentioned in this article.

Chart Of The Day: A Hawkish Fed Could Push Gold To $1,300 Within 6 Months
 

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Chart Of The Day: A Hawkish Fed Could Push Gold To $1,300 Within 6 Months

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Comments (26)
Kevin Mould
Kevin Mould Oct 20, 2022 1:28AM ET
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unfortunately gold futures are not the same as owning physical gold, and are creating a fake supply and demand. If the gold futures keep dropping it's because the government doesn't want you to own physical gold and the best reasons to load up on it. I personally recommend 20% or more in physical precious metals and the rest in physical cash, not sure when the market bottom will be, but I'll start looking to get back into the market after a new low next year. As a realtor, I predict a 40% correction in housing over the next year or so. Realize that we could move down over an extended period of 2 or more years.
Jamie Kent
Jamie Kent Oct 15, 2022 2:01PM ET
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Cathy Wood is highly regarded
Ryan Fink
Ryan Fink Oct 15, 2022 8:34AM ET
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Ive been short gold since a clear break of 1670, did a little back and fill and now thru 1670 again this thing is gone straight to 1300
laurent Eliane
laurent Eliane Oct 14, 2022 11:42PM ET
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your theory of short seller, full speed, with the most happier in this situation....I mean the government. Imagine...as a government, you have printed like he'll since 2010...you remember ?..OK, since then we had the PIGS, you remember ?..OK, then Ben helicopter for covid etc...OK,?..the debt surge, without counting the high demand for weapon...int rate up meaning...problem ahead with real estate, lian, banks, non banks...retirees, etc...so bankruptcy, unemployment, money with no value,...and aheople are selling the only asset that will keep value.yes, once the short seller will be burnt by a backfire coming from people seeing that British pound, euro, Turkish already out, etc...only the dollar, with a deficit not manageable at 10 percent rate tb ?snowball effect...do you want to jnvest in the Turkish lira...or the British pound with 16 percent inflation and may be 4 percent int. rate ?
Murali Krishna
Murali Krishna Oct 14, 2022 4:28PM ET
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Just take the 1 one out of 1649. you will see the real price where it ought to be
Jack Sailor
Jack Sailor Oct 13, 2022 3:46PM ET
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give Hunter his pipe back
Robin Hood
RobinHdJr Oct 13, 2022 12:27PM ET
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Totally concur. Sound analysis. Covers fundamental and technical reasoning. Thank you
amjad ali
amjad ali Oct 13, 2022 12:05PM ET
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hello pinchas billionair how many doller u get for this artical never come neverever
Marty Garinger
Marty Garinger Oct 13, 2022 11:49AM ET
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When Gold hits $1400. Dump the Greenbacks and BUY!
david poindexter
david poindexter Oct 13, 2022 10:23AM ET
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most central banks buying, going upon most other currency's, when dollar crashes ( at ,20 year high) , gold will be the preferred asset to own.
 
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