Gold trading strategy and technical analysis – Gold fell for the second straight day on Wednesday, hit by technical selling and investors quitting the yellow metal a day after the Federal Reserve upgraded its U.S. economic outlook and presented few clues on further quantitative easing. Gold has made an 8-week low. The bullion is down around 9% since late February 2012 and it seems some funds are closing their bullish bets on Gold, fearing the Fed could be done with monetary easing after a string of improved data, including employment and retail sales. In fact, Gold has come down by almost $80 per ounce in last 3 days and has lost the premium which it enjoyed in anticipation of quantitative easing to stimulate the economy. The bullion has now wiped out the gains which it made since late January when the Fed said it would keep interest rates same for the next several years.
The current Gold selling occurring in the market is a liquidation of long positions. But this very well could become a sustained selling if the yellow metal doesn’t find some kind of support. But the strong U.S. dollar based on the stronger economic data and FOMC statement is not helping the case for Gold. Mostly Gold trades inversely to the U.S. dollar and a stronger dollar makes the Gold more expensive in other currencies and thus can hurt demand.
Technically, Gold has entered the negative territory as it has breached an all important 200-day moving average which is a key technical support. This strong support is crucial because a few days back it bounced from 200-day moving average and now to break it means real trouble times ahead. The immediate support is at around $1,625 area which was the January low. $1625 is also a 61.8% Fibonacci retracement of the move from low of December 2011 to the high of February 2012. If it breaks $1625 level which in most likely situation is certainty it might find the next support at the rising trend line at around $1550 to $1560. But if this powerful technical momentum along with no supportive news for Gold continues, it could take the price well below $1550 to test $1523 which is the low of December 2011.
This technical event could also turn out to be a ‘technical washout’ with low volume driven selling getting slowed by the weekend and favoring a buying on a pullback towards $1,625 to $1,600. The argument behind this is the persisting European debt problem which is not getting resolved any time sooner will provide the support to the declining bullion prices. Investors are treating Gold as a hedge in this inflation type of policy.
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