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Chart Of The Day: Gold Takes Aim At $2,000 Buoyed By Technicals Plus Geopolitics

Published 02/17/2022, 09:32 AM

Finally, we can confess: Ever since the Fed pivoted to its current hawkish stance on monetary policy in November, we've been tilting bearish on gold. We posited that rapidly rising interest rates would boost the dollar, compounded by a substantial liquidity reduction.

As well, given that gold is priced in USD, and the yellow metal doesn't provide a yield, we figured traders would rotate out of gold and into the greenback.

However, the current military standoff between Russia and Ukraine along with Kyiv's western allies has added considerable luster to the precious metal with its recent upward push helping to validate and confirm its new path higher.

Gold Daily

Gold had been trading within two opposing yet equally determined forces. However, bulls have taken control of the yellow metal, paving the way for gold's return to the $2,000 level.

The commodity opened higher on Wednesday yet closed lower than Tuesday's open-to-close price range. This formation is called a Bearish Engulfing pattern; it occurs when bulls decide to give it a go, but bears ultimately have the last word—accordingly, it's a bearish signal.

However, we expected this Bearish Engulfing pattern to be even stronger, considering it confirmed the top of the triangular range. The driver for the pattern's formation was the apparent easing on the Russian/Ukrainian front.

But renewed global tensions after claims Russia was pulling troops back turned out to be false helped the bulls undermine the bearish pattern. This failure of the pattern is akin to the demoralization that follows individuals or groups who are under the impression a victory had been achieved, only to then discover it was a mistake, followed by a loss.

The current breakout has also strengthened the case for a continued uptrend, after it surpassed the Nov. 16 peak.

Trading Strategies

Conservative traders should wait for the triangle to demonstrate accumulation before considering a long position.

Moderate traders would wait for a pullback to reduce exposure but not necessarily to confirm the trend's integrity.

Aggressive traders could enter a long position according to a trading plan that meets their timing, budget, and temperament. Here is a basic example:

Trade Sample – Aggressive Long Position:

  • Entry: $1,875
  • Stop-Loss: $1,850
  • Risk: $25
  • Target: $1,975
  • Reward: $100
  • Risk-Reward Ratio: 1:4

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