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Gold’s Trading Range Could Widen To $70 As U.S. Dollar Not Backing Down

By Investing.com (Barani Krishnan/Investing.com)CommoditiesMay 18, 2022 04:24AM ET
www.investing.com/analysis/golds-trading-range-could-widen-to-70-as-us-dollar-not-backing-down-200624460
Gold’s Trading Range Could Widen To $70 As U.S. Dollar Not Backing Down
By Investing.com (Barani Krishnan/Investing.com)   |  May 18, 2022 04:24AM ET
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Faced with a dollar refusing to back down from 20-year highs, the trading goalposts in gold futures could widen from their current $50 an ounce to $70 as investors become increasingly unsure of the yellow metal’s standing as a hedge against political and economic risks.

While gold futures got to the key $2,000 level within two weeks of the Ukraine invasion, reaching a 19-month high of $2,079 by Mar. 8, they stayed in that area for just five days and slipped below $1,900 within three weeks of the peak.

Since then, they have bobbed all over the place, returning to $2,000 on Apr. 18 before slumping to this week’s 4½ month low of under 1,786.

Gold Daily
Gold Daily

All charts courtesy of skcharting.com

Gold has always been volatile—with strategist Christopher Vecchio noting its ability to benefit more from swings than the dollar and bonds—but recent world and market events have done little for both longs and shorts in the metal.

“Gold prices have not been able to sustain a meaningful bid,” Vecchio wrote in a Daily FX blog that appeared on Monday.

“It remains the case that ‘a deeper setback appears increasingly likely henceforth’, particularly as weekly momentum indicators take a deeper turn south.” 

What it means is that while gold is identified as a hedge against the dollar, it really isn’t; not with the greenback’s current trajectory amid aggressive rate hikes by the Federal Reserve that have, effectively, made it a greater haven than bullion. 

Bond yields on the 10-year note, the other major variable that decides the direction for gold, have come off their highs but not by much, leaving gold at the whim of the dollar still.

This leaves gold with the occasional chance to pop higher in sympathy with stocks and any Fed speak about the possibility of recession or otherwise. 

“With the Fed telegraphing their every move, Fedspeak this week will be increasingly important, particularly as positioning is continuously squeezed with bearish sentiment building,” FXStreet said in a gold outlook issued this week. 

It added:

“In turn, we continue to expect substantial selling flow to weigh on the yellow metal at a time when liquidity is scarce. Even with recent liquidations accounted for, positioning analytics still argue for the potential of additional pain for gold bugs.”

Craig Erlam, analyst at online trading platform OANDA, concurred with that view.

“The yellow metal has seriously fallen out of favor despite ongoing inflation concerns as central banks attempt to make up lost ground,” Erlam said.

“Even widespread risk aversion isn't helping gold and a much stronger dollar is making life very hard for it. Another break of $1,800 could be painful despite two successful defenses of it so far.”

Gold Futures Weekly

Charts show that gold’s near-$50 gap this week—between the Monday peak of $1,834.84 and Friday bottom of $1,785.40—could eventually expand to as wide as $70, said Sunil Kumar Dixit, chief technical strategist at skcharting.com.

“For now, gold’s price action reflects lack of enthusiasm from both teams bulls and bears as they await break of key trend levels,” Dixit said.

“Market participants try to discern where gold fits in the current scheme of things.” 

Since dropping from the Apr. 18 high of $1,998, gold has continued on a bearish path for a fifth straight week after its settlement below the 50-week Exponential Moving Average of $1,848 and the 100-week Simple Moving Average of $1,840, said Dixit.

Gold Monthly
Gold Monthly

The current week began with extended corrections that pushed gold down to $1,786—before the rebound to $1,836 that brought the bears out again.

“The bulls are trying for $1,850 and above, to gather enough steam to march towards $1,880 - $1,900,” said Dixit, who bases his studies on the spot price of bullion.

“Bears, on the other hand, are cool with their target for $1,780 - $1,750,” he added.

Alternatively, gold’s weekly stochastic reading was approaching oversold territory, said Dixit, adding that this could open a new upside towards $1,850 and extended gains of $1,880 to $1,900.

At that point, the volatility could return, he cautions.

“Since the current trend is bearish, sellers are very likely to join for massive shorts aiming for $1,800 - $1,750 again.”

Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold positions in the commodities and securities he writes about.

Gold’s Trading Range Could Widen To $70 As U.S. Dollar Not Backing Down
 

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Gold’s Trading Range Could Widen To $70 As U.S. Dollar Not Backing Down

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Comments (13)
Good Chi
Good Chi May 19, 2022 3:54PM ET
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thanks sir
Shahidur Rahman Akandha
Shahidur Rahman Akandha May 18, 2022 10:58AM ET
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Thank you Sir for your informative article
Barani Krishnan
Barani Krishnan May 18, 2022 10:58AM ET
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Thanks for being an appreciative reader, Shahidur.
Heine Pedersen
Heine Pedersen May 18, 2022 8:12AM ET
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How about a look at the insane natural gas price. Lots of bearish news from Europe the last couple of days, but no US news outlets seems to report about it. Fishy
Barani Krishnan
Barani Krishnan May 18, 2022 8:12AM ET
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Thanks, Heine. I will be looking at that right today in weekly gas column that will appear tomorrow.
Ryqo iShop
Ryqo iShop May 18, 2022 7:35AM ET
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Seems gold is no longer a backbone to run to for a fall of US Dollar anymore 🤦🏽🤦🏽!!
Barani Krishnan
Barani Krishnan May 18, 2022 7:35AM ET
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Yes, unfortunately, so. It's very hard for it to keep to its haven billing with all the manipulation that's going on.
Jan Buyle
Jan Buyle May 18, 2022 7:33AM ET
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If you can't see the huge picture book Cup & Handle Pattern in the chart above, you need to go and see an ophthalmologist... Gold is ultra bullish in de medium term...
Barani Krishnan
Barani Krishnan May 18, 2022 7:33AM ET
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Perhaps in. your view Jan. The reality, unfortunately, is otherwise.
Gustavus Maramis
Gustavus Maramis May 18, 2022 7:29AM ET
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Dont you know that Russ keep pilling bullions long before invasion to Ukraine ? Knowing that facts who will profiting from gold if price keep climbing ?
Barani Krishnan
Barani Krishnan May 18, 2022 7:29AM ET
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There are lots of nefarious activities across markets, and gold probably has more than its fair share of these.
Doug Wildman
Doug Wildman May 18, 2022 6:07AM ET
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Buy gold and treat it like you buried it in the backyard. Dig it up in twenty years and see what you have.
Barani Krishnan
Barani Krishnan May 18, 2022 6:07AM ET
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Definitely worth many times more than a bone! I hear you, mate :)
IT Pro
IT Pro May 18, 2022 6:05AM ET
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Oil is trading at 114. So long as it holds 110 usd, its headed higher towards 120-122 usd in the next leg.
Barani Krishnan
Barani Krishnan May 18, 2022 6:05AM ET
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And a crash after that
IT Pro
IT Pro May 18, 2022 6:05AM ET
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Barani Krishnan   Yes! You are absolutely right !.. My long term wave counts point downward. We have discussed the possibility of 58-65 USD levels before :)
Barani Krishnan
Barani Krishnan May 18, 2022 6:05AM ET
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IT Pro  I believe in what you're seeing for two reasons: 1. Chart history and their probabilities itself ; 2. Consumer resistance (while people are paying prices as they are now, there's only so much of "fertilizer" that you can continue dumping on them).
IT Pro
IT Pro May 18, 2022 5:58AM ET
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Gold is now due for a bounce. After testing support at 1785 levels, it could bounce towards 1840 and 1890. Not so good to short here as even if if break 1785 on downside again, we face multiple previous supports. I would trade to the upside or not trade at all.
Barani Krishnan
Barani Krishnan May 18, 2022 5:58AM ET
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That's exactly Sunil's point. Gold is really stuck in a range and the range is getting wider.
IT Pro
IT Pro May 18, 2022 5:58AM ET
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Barani Krishnan   If you notice, Gold has been in a range between 2080 usd and 1660 usd. Within this larger range, Gold has spent most of its time between 1930 usd and 1720 usd.  This is a significant consolidation. Whenever this consolidation breakouts, we can expect to see a large move of 300-400 usd. I wont risk guessing the direction at the moment. Still more ping pong play left within this range :)
IT Pro
IT Pro May 18, 2022 5:58AM ET
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Barani Krishnan   This range is from April 2020 till present time.
Barani Krishnan
Barani Krishnan May 18, 2022 5:58AM ET
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IT Pro  Ping pong is the word! Thanks for the perspective, mate :)
Abdelraziq Abuaisha
Abdelraziq Abuaisha May 18, 2022 5:49AM ET
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We are getting closer to the final fray. I feel sorry for those who bet on the green-paper against the Golden-Metal :)
Barani Krishnan
Barani Krishnan May 18, 2022 5:49AM ET
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I believe you are right. Hold to your convictions, mate.
 
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