Day five: our potential gold trade

Gold moved up yesterday on a massive position adjustment. 


The market clearly went into the Fed meeting expecting an acknowledgment of recent inflation forces and didn’t get them. In fact, Yellen said the recent pick-up in inflation was just ‘noise’.

The employee cost index (ECI), or the level of US employee wage growth has now become perhaps the most important chart for traders who trade around Fed expectations and a move higher would be significant for Fed policy and should cause yields and the USD to rise and gold to fall.

Still, while we saw a fundamental position adjustment, good technical buying has been seen on the break of the 55-, 100- and 200-day moving averages, while the April downtrend has also been broken. The 23.6% retracement of the recent rally could be a good level to look at longs at $1302.5, given the 9-day RSI is overbought.

The daily chart may suggest buying dips given the short-term extended nature of price, however the weekly chart seems more interesting to me. A close tonight above the downtrend would be positive and put the double bottom neckline in play (at $1433). A break of $1433 over the medium term would target $1684 (based on the double bottom pattern). Fundamentally this seems a stretch, but this a pure technical view.

Of course the gold bears would want to see this level hold.

Click on chart to enlarge.

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.