August 3, 2022
  • August 3, 2022

Technical analysis of gold: buying strategy in the event of a dip

By on April 26, 2021 0

Technical indicators on the daily chart still support the possibility of further gains for the price of gold.

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At the end of last week’s trading, the price of gold retreated to the $ 1,770 level after attempts throughout the week’s trading to break the psychological resistance level of $ 1,800. What added to gold’s losses was the return of yields on US Treasury bonds, which had always been a factor affecting gold’s performance in recent times. At the same time, the fall in the dollar had the effect of stopping mitigating the losses in gold. Since the start of 2021, the price of gold has suffered a loss of 7%.

Silver, gold’s sister commodity, also came under pressure, and silver futures fell to $ 26.00 an ounce. The white metal suffered a slight weekly loss of 0.15%, in addition to its decline since the start of 2021 of around 2%.

Global financial markets are monitoring the re-emergence of coronavirus infections in India and Japan. Both countries have seen a significant increase in the number of new cases, with India breaking the world record for COVID-19 for two consecutive days. Investors are also seeing negative reactions to US President Joe Biden’s proposal to raise capital gains tax to 39.6% as part of his efforts to fund his program.

These developments initially affected stocks, bonds and the dollar, but some of the pressure has been eased.

The benchmark 10-year Treasury yield rose to 1.57%. The one-year US Treasury yield fell to 0.061%, while the 30-year yield jumped to 2.254%. The performance of the bond market is crucial for non-yielding metallic commodities because it increases the opportunity cost.

On the dollar side, the DXY index, which measures the performance of the dollar against a basket of six major competing currencies, fell to support at 91.09, and as a result, the DXY suffered a weekly loss of 0. 5%, reducing its increase from the start. of the year 2021 to less than 1.3%. A low dollar is beneficial for dollar denominated commodities because it makes purchases cheaper for foreign investors.

Turning to gold industry data, ETF fund flows have slowed in recent weeks, with average daily outflows reaching 1.5 tonnes in April, up from around six tonnes in March.

Commenting on the outlook for gold, Commerzbank analyst Carsten Fritsch said in a research note: “We expect ETF flows and gold prices to rise again in the second half of the year. And after all, the environment for gold should brighten up significantly. Since the Fed will keep its monetary policy extremely loose for a long time, bond yields and the US dollar are expected to be weaker from mid-year. Therefore, the head wind will be converted to a tail wind. “

Compared to prices in other metal markets, copper futures reached $ 4,325 per pound. Platinum futures reached $ 1,226.00 an ounce. Palladium futures reached $ 2,853.50 an ounce.

Technical analysis of gold:

Technical indicators on the daily chart still support the possibility of further gains for the price of gold, and the bulls’ control over performance will increase if the psychological resistance of $ 1,800 is violated. Penetration of resistance will increase gold purchases and strengthen bull control. This will depend on continued pressure on the US dollar and the imposition of more comprehensive restrictions to contain the rise in infections in many countries around the world despite the launch of vaccines. Corona restrictions are hampering efforts to revive the global economy from the effects of the pandemic. Therefore, the uncertainty increases, which is the most suitable environment for gold to go up at that time. In the event that the dollar recovers and investors ignore the growing cases and focus on the economic recovery, the price of gold could revert to the correction to the support levels of $ 1758, $ 1745 and $ 1720. . So far, I still prefer to buy gold on every dip.