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Chart Of The Day: Gold About To Break Out…

By Fawad RazaqzadaCommoditiesFeb 04, 2022 09:25AM ET
www.investing.com/analysis/chart-of-the-day-gold-about-to-break-out-200617090
Chart Of The Day: Gold About To Break Out…
By Fawad Razaqzada   |  Feb 04, 2022 09:25AM ET
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This article was written exclusively for Investing.com

…But in which direction?

Gold has been stuck in an ugly consolidation range for the past several months amid conflicting macro factors. But is it finally ready to move out of this consolidation and start trending?

The yellow precious metal has been unable move away from around its long-term 200-day average, which is precisely where it is currently residing ahead of the US jobs report. Though the outcome of the nonfarm payrolls will only impact prices in the short-term, what’s important is whether investors believe now is a good time to buy the dips, or whether they should continue to sell into the rallies. 

More on that later, but let’s discuss the charts first.

The daily chart doesn’t look very clear yet, although in a somewhat bullish development, gold’s hammer/doji candle off the 200-day average on Thursday—after the positively-correlating EUR/USD surged on the back of a hawkish ECB—is a welcome sign. Resistance at $1,810 needs to break decisively for prices to stage a more meaningful recovery.

Gold Daily
Gold Daily

The weekly chart looks more interesting than the daily. On this longer-term time frame, one can see that prices are converging inside converging trend lines. This means that in the next few weeks, prices will have to break in one or the other direction. 

Gold Weekly
Gold Weekly

With the long-term trend bullish trend line providing consistent support, the likelihood of a bullish breakout is higher, in my opinion, than a bearish breakdown.

The incisiveness observed on the charts of gold reflects conflicting macro factors. 

Gold proponents argue that the metal remains substantially undervalued. The very high levels of inflation around the world calls for higher gold prices. The metal is deemed by many as an effective tool against rising prices, with inflation continuing to erode the value of fiat currencies globally now—especially in countries such as Turkey where there is also a currency crisis. Yet, the impact of inflation on gold prices has been very minimal so far. 

What’s more, monetary policy from the developed economies—although starting to tighten slightly as central banks react to inflation—has never been as loose as it was in response to the global coronavirus pandemic. Again, this caused investors to pile into the racier equity markets (and crypto currencies) rather than gold, although the yellow metal found support initially as it rallied to a record high of above $2,000 in 2020, before giving back a big chunk of those gains since.

However, with inflation showing no signs of easing, and US technology stocks starting to show a few cracks, gold may be able to withstand rising yields and break higher.

Chart Of The Day: Gold About To Break Out…
 

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Chart Of The Day: Gold About To Break Out…

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Comments (8)
simone scelsa
simone scelsa Feb 06, 2022 12:27PM ET
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The stock market was the inflation hedge in 2021, gold will be the inflation hedge for the rest of the decade.
Feb 05, 2022 3:06AM ET
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want points
Doug Wildman
Doug Wildman Feb 04, 2022 4:11PM ET
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I would say something but it is pointless.
Chart Harmonics
Chart Harmonics Feb 04, 2022 4:00PM ET
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Would completely agree if the Fed we have now is the Fed we had a year ago. QE will be a thing of the past by summer, and we're looking at 1.25 - 1.50 base rate by year end. So inflation is no longer being left to "run hot". Todays NFP proved beyond a doubt the economy is strong and the "covid fear" is a thing of the past. There is no reason for gold to move up.
John Parr
John Parr Feb 04, 2022 2:26PM ET
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Gold has been a proven hedge for inflation and equity market volatility for centuries. Yet gold can be overlooked when the equity stocks boom rocketed and generate market optimism and euphoria. The recent boom of NASDAQ technology stock and blue chip S&P500 are suppressing gold futures'  bullish uptrend; despite of record 6.8%-7% inflation. The non-transitory inflation and the most recent rout and loss  of tremendous market capital in flagship technology and blue chip equities, will ultimately motivate gold uptrend as a hedge diversifier in portfolio
John Parr
John Parr Feb 04, 2022 11:56AM ET
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JP Morgan earned $1Billion from trading, storing bullion and financing precious metal, (mostly gold ) per Reuter. The “ETFS Physical Precious Metals Basket Shares” hold gold, silver, platinum and palladium at the JP Morgan London vault 90,180 ozs gold (226 Good Delivery gold bars) . Other large financial institutions do utilize as a hedge against stock equity volatility and inflation in their mutual funds, stock equity portfolio, although relatively a small percentage.
Jack Hudson
Jack Hudson Feb 04, 2022 11:56AM ET
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JP Morgan paid almost a billion dollars for manipulating the gold market last year. https://www.nasdaq.com/articles/jpmorgan-to-pay-%24920-mln-fine-for-manipulating-precious-metals-treasury-market-2020-09-29 Here they are again last year, different crookery. https://www.reuters.com/business/finance/jpmorgan-pay-60-mln-settle-precious-metals-spoofing-lawsuit-2021-11-19/
Jack Hudson
Jack Hudson Feb 04, 2022 9:11AM ET
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Per his weekly chart, the deeper into a triangle price goes the less likely it is to have any significant breakout.
Vi Ma
Vi Ma Feb 04, 2022 8:43AM ET
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Fawad - GLD will go to 1600 USD before going anywhere up. Pls stop embarrassing urself trying to build a consensus to propel gold to higher highs
Edward Chong
Edward Chong Feb 04, 2022 8:43AM ET
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haha u can slowly join alice in her wonderland and wait for your 1600.
Tyrone Jackson
Tyrone Jackson Feb 04, 2022 8:43AM ET
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Huge buyers at 1750. At 1600 the premium will be 250 a ounce Hence real price to hold physical will be 1850.
SunilKumar Dixit
SunilKumarDixit Feb 04, 2022 8:43AM ET
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Tyrone Jackson. You are right. The metal finds buyers on every dip. 1600 sounds distant though.
 
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