Strategy
Sell $1816. Stop above $1835 and target at $1765. Trade duration estimated to be around 2-3 months.
Technical View
After reaching a low of $1697.37, price has managed to recover but was capped by a previous high resistance at $1834.00. This is the second time this resistance has capped the price rally. This resistance level is also the Fibonacci 62% correction point of the decline from a high of $1916.43 to the low of $1697.37. If price fails to move above the Fibonacci 62% correction point, it is usually a sign of a corrective move. This would mean the rally was corrective and the next move for price would be down If price is unable to move above this high, price is likely to be moving lower. A bearish Harami candlestick price pattern adds to the bearish call.
Stochastic has a bearish crossover in the overbought zone and is moving lower, hinting of a price decline. MACD remains bullish but we could see a bearish MACD crossover, which would turn the trend from bullish to bearish. Currently 20EMA remains bullish with price above the 20EMA line. The first point to decline would be the low point of a big gap at $1764.55 and this is also the target for our sell recommendation.
Fundamental View
The US dollar may be languishing at a 1-month low and last Friday’s non-farm payrolls data adds to the greenback’s weakness but the data showed the US labour market is recovering. This is a sign that the US economy is slowing picking up the pieces from the depth of the COVID-19 pandemic. While labour situation is still nowhere near to the Federal Reserve benchmark to start tapering, it is a matter of when and not if; there will be a tapering and an eventual interest rate hike down the road.
Recent US data are also hinting that inflation could be transitory as predicted by Fed’s chairman Powell. He has insisted that inflation would be temporary and this is one of the reasons he will keep interest rate to help the US economy to recover from the COVID-19 pandemic. With Federal Reserve keeping interest rate and only hiking rate when the economy is on a strong footing, it is likely we will see an economic uptrend and growth down the road.
Infection cases are still high in the US despite vacations and another wave of COVID-19 infection could send the US dollar appreciating in value against Gold. “Risk on” environment is also likely to aid the US dollar more than Gold should be highly contagious Delta variant start to spread again.