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Chart of the Day: Gold to $1,800 on Slowing Interest Rate Bets

By Pinchas Cohen/Investing.comCurrenciesNov 29, 2022 08:17AM ET
www.investing.com/analysis/chart-of-the-day-gold-to-1800-on-slowing-interest-rate-bets-200632900
Chart of the Day: Gold to $1,800 on Slowing Interest Rate Bets
By Pinchas Cohen/Investing.com   |  Nov 29, 2022 08:17AM ET
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The rally in the U.S. dollar fizzles as China relaxes some of its COVID policies after widespread protests. Once the risks from China's strict zero-COVID policy lockdowns eased, traders refocused on expectations on the likelihood of a slower path to higher U.S. interest rates after last Wednesday's Fed minutes revealed policymakers agreed that it would soon be appropriate to slow interest rate increases.

On Nov. 10, U.S. inflation slowed more than expected, rising 7.7% year-on-year (yoy), the shallowest climb since the beginning of 2022. Also, the Fed's preferred measure, core prices—excluding volatile (and therefore less representative) energy and food—rose 6.3%, dropping from a 6.6% increase in September, which was a forty-year high.

Accordingly, traders readjusted their bets to a half-percentage-point increase at the Dec. 13-14 FOMC meeting, down from the last consecutive four 0.75% hikes.

With expectations for slow rate hikes and the dollar in correction mode, gold is in the clear for a rally, at least in the short term.

Let's see how this dynamic translates into the price and its trajectory.

Gold Daily
Gold Daily

Gold may have completed a falling flag, bullish after the initial 10.7% surge in 8 sessions. This pattern is of the continuation variety because technicians expect the preceding, nearly straight advance to repeat itself upon the flag's clear upside breakout. That expectation is because of the dynamics that generically drive this pattern. Traders lock in profits after an almost-too-good-to-be-true advance, during which time they contemplate whether they got lucky or were correct. The upside breakout occurs after ongoing demand absorbs all available supply and buyers increase their bids beyond the flag. Early bears kick themselves in the pants for not having enough faith in themselves and rush back in.

Conversely, bears learn from their mistake and join bulls. Traders on the sidelines pick a side, and now we have a market going up. Of course, this is a simplified explanation, but that is the assumption currently driving the market.

So I look for more clues to support this view.

The RSI, which measures momentum, provided a positive divergence when rising when the price was flat, alluding that the price could follow. However, the clearest indication is that the flag developed after a double bottom. That means the bulls gave all they were willing to give to overcome the hindrance of the September and October highs.

Traders stung by the near-7% drop from the $1,730s were concerned that the bearish stronghold would hurt them again. So, bulls gave it a push, and once they made it through, they rushed out, as already outlined. However, the flag's upside breakout above the neckline bolsters the now bullish stronghold. The fact that it happens precisely on the neckline of a double bottom reinforces the bullish message.

Note how the 50-DMA resisted the previous four peaks. Note the price paused before overcoming the 50 and 100-daily moving averages (DMA) with doji. Then, after finding resistance by the 200-DMA, which was the technical impetus for the flag, the 100 converted to support as the price sank intraday when Fed minutes were released.

Now, the price, and the fight, is between the 100-DMA and the 200-DMA, which realigned with the August peak.

Trading Strategies

Conservative traders should wait for the price to close above the Nov. 25 high, then wait for a return move that confirms the flag's support before risking a long position.

Moderate traders would wait for another high above the initial breakout and a pullback for a better entry.

Aggressive traders could enter a long position now.

Trade Sample - Aggressive Long

  • Entry: $1,739
  • Stop-Loss: $1,719
  • Risk: $20
  • Target: $1,799
  • Reward: $60
  • Risk-Reward Ratio: 1:3

Disclaimer: The author does not have a position in any of the assets mentioned.

Chart of the Day: Gold to $1,800 on Slowing Interest Rate Bets
 

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Chart of the Day: Gold to $1,800 on Slowing Interest Rate Bets

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Comments (9)
Saun Melkon
Saun Melkon Nov 29, 2022 11:02AM ET
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If people were rational, they'd buy gold and silver and shun fraudulent and ILLEGAL debt-based currencies like the dollar (aka FRNs). Since people are completely lost, they will stay in fiat currencies and ignore gold. Gold's price will drift lower with higher interest rates by the Fed. Lower house prices also arrange the Fed and the rich who can scoop them up at lower cost. The lower classes also will be prevented from using their homes as piggy banks to spend and cause price inflation. Win win for the ruling classes.
Charles Boon
Charles Boon Nov 29, 2022 9:45AM ET
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Fed will not slowdown the tightening cycle. get ready for slump in equity and paper gold with tremendous real yield spike up.
XYXX
XYXX Nov 29, 2022 9:22AM ET
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Aazam Khan
Aazam Khan Nov 29, 2022 9:16AM ET
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Nobody knows that where the gold will go. If they would know it then they would become a billionaire and woupd not need to write a column. Do your own calculation. Manage your own risk properly as oer risk apetite and develop your own strategies. Trade in current situtaion. Apply your technical and fundamental analysis. And if dont know then quit trading as you will lose only.
Jose Tavera
Jose Tavera Nov 29, 2022 9:16AM ET
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Great 🔥
MUHAMMAD KASHIF ABRAR
MUHAMMAD KASHIF ABRAR Nov 29, 2022 9:16AM ET
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Excellent comments on Real based. Great.
Śôuf äinè Râjā
Śôuf äinè Râjā Nov 29, 2022 9:15AM ET
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2000
Alex Fruzi
Alex Fruzi Nov 29, 2022 9:13AM ET
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Slowing in rate hike doesnt mean cutting the rate , so it doesnt make sense to think gold should go up , slowing rate hike but still there will be increase in rate which is negative for gold , expecting below 1600
Pinchas Cohen
Pinchas Cohen Nov 29, 2022 9:13AM ET
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Slowing rate means that investors are repricing expectations.
Irpan Supiandi
Irpan Supiandi Nov 29, 2022 8:41AM ET
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thank you pinchas. in my outlook gold will ended this year @1800's..probably 1805/1815 areas if Fed truly raise their rates by 50 bps in December, and then correction should be happen in mid January trhough February or late January to Early March. and then will up again on Mid or End March..than we should see the Fed hold their rates with risking the inflation to pop up again because of their path to hold the higher rates until enf of 2023. just my opinion
Pinchas Cohen
Pinchas Cohen Nov 29, 2022 8:41AM ET
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Happy trading, Irpan!
Shaheen Hays
Shaheen Hays Nov 29, 2022 8:35AM ET
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Place as much faith in this preditcion as the 1300 in 6 months, which to be fair seemed a good call but gold from here will go back down not up, iflation way to high rates still to go up means higher carry cost and gold should go down
amjad ali
amjad ali Nov 29, 2022 8:24AM ET
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where is your 1200$ gold u pinchas
Mr Doodl
Mr Doodl Nov 29, 2022 8:24AM ET
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He says 'short term'
Pinchas Cohen
Pinchas Cohen Nov 29, 2022 8:24AM ET
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Never had one.
 
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