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Did Gold Over-Shoot its Rip?

Ideally, Gold would move in reverse tandem with USDollar – this was what was seen towards the end of last week in the yellow metal where it ripped (move upwards) in a parabolic fashion on the back of a dovish-Fed-driven dollar weakness. Fundamentally, foreign holders of gold would only trade in USdollar, a weakness in USDollar would increase buying power of these holders thus acquiring more gold for the same USD value and vice versa.

However, we are of the opinion that the market might have overpriced the dovishness of the Fed as current Fed-Fund futures contract for January 2020 is showing a market pricing of even a rate cut of 15 basis point. Better-than-expected jobs data released on Friday did not agree with the Fed on its newly-adopted uber-dovish pathway; hinting to us that should local US macro-economic conditions continue to show unperturbed strength, there might be an increased likelihood of a rate hike this year (given that the Fed claims that they are entirely data dependent). On the back of this, we at least expect a shorter-term bullish recovery in the greenback which by default would push gold lower.

Technically, we are currently trading below the neckline of a Head and Shoulders pattern (see H1 Chart) – a bearish reversal pattern. Traders can ride on the envisage bearishness by shorting gold.

Fig 1: Hourly (H1) Gold Chart


Sell @ current market price (instant execution)

Stop: 1328.26

Limit: 1287.75

Alternatively, if US macrodata starts to disappoints, then perhaps the Fed were right with the delve to dovishness thus re-igniting a bearish dollar, Gold would be expected to rip further as a result. Traders should always use a stop-loss.

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