Precious Metals

Gold

XAUUSD H4 Source: TradingView

XAUUSD M30 Source: TradingView

The yellow metal went through a sharp decline of about $15.50, -0.95% during the early Tokyo session but has since recovered most of the losses. After falling to a 29-month low, gold is trying its best to cling on to its life near $1940. 

A super hawkish fed is no good news for the safe haven. In an environment where hawks are dominant and interest rates are on the rise, the opportunity cost for holding gold increases because of its non-yielding nature. Investors would much rather keep their money in the bank, earning themselves lucrative returns. This will further suppress gold prices.

With that being said, our preference for gold in the short to medium term is bearish. 

We build our case based on a few confluences including:

1. Gold is in a bearish market structure. It is now trading in a bearish channel which is very much intact (Image 1). We are expecting a continuation of the higher timeframe trend.
   
2. There were two bullish fakeouts as shown in Image 2 before a breakout to the downside. The fakeouts trapped some buyers and they are now stuck in their long positions if they haven’t been stopped out already.
   
3. The bearish breakout from the consolidation was decisive. Even with the sharp recovery, the gold price is still trading well below ($15 away) the consolidation box.
   
4. Macroeconomics- Rising interest rates and an ever stronger greenback.

Alternative Scenario

If prices close above $1667 (the midpoint of the consolidation range), we may expect the price to continue rising until the $1680 key resistance area. 

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