Forex Trading Idea XAU/USD- Gold
Technical View
On the weekly chart of Gold below, it seems a 5-wave movement may be over and a correction is likely to follow. From the low of $1160 back in Aug 2018 price has moved up to a high of $1612 in a 5-move movement. The high at $ 1612 was also in the form of a Spinning Top. This candlestick price pattern is usually a hint of a possible price high. Both MACD and Stochastic are also hinting with divergence warnings. This is again another warning sign of a possible price high. If price is unable to move above $1612, it means that the rally is over and a 3-wave A-B-C corrective wave is likely to follow which could bring price lower to $1460. In this scenario, price is unlikely to move above $1612 and is likely range and move down to $1460 in the next 6 months.
Fundamental View
One of the reasons for Gold’s strength has been for market risk to increase. In our present market situation, where U.S. and China have signed a phase 1 trade deal, market risk has decreased and this is not good for Gold. Although risk still exist where a phase 2 deal may fail, the signing of a trade deal has partially reduced market risk. The Middle East is quiet at the moment. While it does not mean that risk has dissipated, the pause has also resulted in a reduction of risk. This is also not good for Gold. Both factors have resulted in less demand for Gold’s safe haven status.
Last year, the Federal Reserve cut U.S. interest rate 3 times. That has resulted in price of Gold moving higher. Going forward, it is unlikely the Fed will cut interest rate again 3 times in 2020. In fact the Fed is likely to pause its interest rate hike in 2020 and at most we are only likely to see one cut in interest rate in 2020. This is not good for gold.
One of the major reasons for the rally in Gold has been the active buying of Gold by the central bank of Russia. However, Bloomberg reported on the 16th of January 2020 that Russia’s gold buying binge is slowing down. Analysts have also said that the Russian central bank has maxed out the proportion of gold it wants to keep in reserve. This is also not good for gold.
Strategy
Sell Gold at $1580 for $1510 for the first down leg. Stop should be placed above $1612.