Potential spot gold trade

Renewed USD strength has really crunched gold, as the precious metal has now lost the $1,200 handle.

gold
Source: Bloomberg

The US dollar index (DXY) rallied to a high of 86.69 after the greenback gained significant ground against most of its major peers. This has seen the DXY trade at its highest level since June 2010, with the currency being spurred on by a strong non-farm payrolls reading.

Essentially, the implication of the strong reading is that the Fed will turn much more hawkish, particularly given most Fed members have been recently insisting a lift-off in rates will be primarily data-dependant.

The FOMC minutes will be released this week and traders will be looking for signs of broadening dissention within the committee. Fedspeak this week is also likely to be the primary driver of rate hike expectations, with 14 members on the wires.

Gold slipped from trading at around $1,220 down to around $1,185, its lowest since December 2013. This level really has to hold in the near term, and the fact China has been on holidays is probably not helping to put a floor in prices.

With Fed members likely to start turning increasingly hawkish, I feel strength will be used as an opportunity to sell and lead to a retest of December 2013 lows. Traders should potentially consider selling gold on rallies into $1,204, with stops placed above $1,220 and initial targets to December lows ($1,183).

gold
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This information has been prepared by IG, a trading name of IG Markets Limited and IG Markets South Africa Limited. In addition to the disclaimer below, the material 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 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. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. International accounts are offered by IG Markets Limited in the UK (FCA Number 195355), a juristic representative of IG Markets South Africa Limited (FSP No 41393). South African residents are required to obtain the necessary tax clearance certificates in line with their foreign investment allowance and may not use credit or debit cards to fund their international account.