In our last update on gold a month ago, we were watching for a false break below range lows at $1670 to set up a rebound. While the false break lower did not eventuate, a rebound to $1807 followed.
In this article, we update why the rally in gold faltered and what comes next as gold again eyes the bottom of its 28-month range.
Gold undone again by the rampant dollar
The decline from the August 10th $1807 high to last night’s $1727 low, has coincided with an almost 4% rally in the U.S dollar index. As noted previously, while correlations can ebb and flow over time, gold is typically inversely correlated to the U.S dollar. When the U.S dollar rallies, gold generally declines and vice versa.
After a period of positive correlation in March and April, the negative correlation between gold and the U.S dollar reasserted itself in July and is sitting around -0.60%. Based on the strength of the correlation, the rally in the U.S dollar over the past month has undercut the rally in gold.
What about yields?
While gold at times holds a negative correlation with real yields, including into the end of last year and during the first half of 2022, it’s a correlation that is not currently in play. If it were, gold would be trading significantly lower, towards $1000.
What do the charts say?
Gold has been ranging trading in a wide range between $1670 and $2070 for the past twenty-eight months.
The bottom of the range is again coming into play. Should gold show tentative signs of holding and bouncing from this support zone, the expectation would be for a rebound back towards $1807, with scope to the middle of the range at $1870 and longs should be considered.
Aware that should gold see a sustained break below $1670/60, it would open up the next downside levels at $1557 and then $1451.
Source Tradingview. The figures stated are as of August 23 ,2022. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation