Gold made a big green candle (weekly) closing above the resistance of $1800 comfortably as the dollar remained sideways after the Fed announced its awaited ‘tapering’ of asset purchases to control inflation but did not hint at an immediate rate hike which became a positive for the yellow metal even as the dollar was trading in green mid week. Jobs data also showed a massive rebound in hiring thus showcasing the ongoing strength in the economy which further lifted riskier assets to new all time highs. Another fundamental reason for gold to move higher is the resurgence of coronavirus in many countries with daily count increasing at a rapid rate which is a matter of grave concern given the winter is setting in along with both general and travel restrictions at low or no levels in many places which can lead to spreading of the virus geographically from the highly infected countries as December is more of a holiday month with a lot people traveling. This seems a scary scenario as the vaccines are not helpful after a duration requiring a booster dose which can lead to super spreader events given the time of the year. Amongst such uncertainty, gold remains the most favorable asset class given its safe haven characteristics along with being a hedge against inflation. To watch next week – Inflation data, Fed Speakers, Earnings and other important economic data.
On the chart –
Gold made a stunning recovery as it rose $60 from the lows as the dollar remained directionless after the Fed announced the tapering of its asset purchases with no clear signal of an immediate rate hike which was feared for. This movement from the lows however is more of technical in nature as the yellow metal formed the pattern of inverse head and shoulders picture perfect as the price rebounded from the low which is the right shoulder. Gold had a parallel channel breakout as well in lower timeframes which also aided in fast tracking of the gains. Now the eyes remain on the neckline at $1835 which should be broken this time after being rejected multiple times. We have 2 scenarios –
- Gold closed above the support, till this is held it can go to $1823. If this is crossed it can move towards $1839. And if this is taken out it can rally to $1857.
- Bears have been decimated after the move higher as trend remains super bullish with another breakout expected on the upside except scalp trades which can be of only help.
Bullish view –Bulls made a comeback as they reclaimed $1800 with ease as the dollar remained clueless post the Fed’s announcement of its Tapering of asset purchases. Jobs data also helped push the price higher as the optimism regarding economic growth grew which could further increase the already high inflation. Apart from the above, gold remained buoyed as the pandemic is raging again with its 3rd wave now affecting many major economies with a daily increase in number of infections which needs to be curbed to stop the spread and this can happen only through strict measures like lockdowns thus making the case for a bullish yellow metal. Fundamentals are extremely supportive, while technicals which was the reason behind last week’s move now has fresh legs as charts have turned bullish after remaining in consolidation for long.
Short trades fail to garner any attention post bullish breakouts.
On larger terms, gold remains bullish and prices are expected to head higher.
Possible trades are on both sides but mainly on upside, gold can be bought above $1820 for the targets of $1823 and $1839 with a stop loss placed below $1811. Longer term target $1857.
Dips towards support (and breakout region) can be used to create longs for the above mentioned targets.
Shorts can be useful for scalp trades only.