FxWirePro Call Review: Time to go long on gold?

The price of gold has declined steadily after failing to breach the key $1365-85 resistance area earlier this year and is currently trading $1255 per troy ounce. The yellow metal has been testing this resistance since 2014 and has so far tested in seven times; once in 2014, once in 2016, once in 2017, and finally thrice this year between January and March. See chart

Technical perspective:

While the $1365 area looks like pretty strong resistance, it is important to note that the yellow metal has broken the downtrend channel that has been in place since 2013, in early 2016. Since then the gold has been struggling to find its bullish touch. Since that break, the $1365 resistance area has been tested five times with no luck so far. The chart shows that the price is coming close to the rising trend line that has been tested once in December 2016.

At the same time, Relative Strength Index (RSI), which is an oscillator and points to oversold and overbuy level is nearing the oversold line.

Technically speaking, Gold looks like as good as a sell as a buy, especially for the longer horizon. In the short-term profits are likely to be made from gold’s bounce from the support.

Fundamental perspective:

While gold always enjoys certain jewelry demand, its price movement depends a lot on investment buying which in turn depends on market sentiment. Increasing or decreasing investors’ demand influence gold price. Currently, we have one group of analysts who are calling for long gold citing higher inflation and trade tensions, whereas others are saying that rising interest rates are not going to bear well on gold.

The second argument is strong since gold doesn’t pay any interest. So, when central banks’ rates move up, it’s detrimental for gold’s investing demand. However, higher interest rates might lead to a slide in risky assets and trigger a safe haven demand, when the market is already heated up with trade disputes.

So, what to do?

Let’s first clarify that the safe haven demand for gold depends on the nature of the crisis. While a global currency crisis or depreciation crisis is an instant buy for the gold, a steady slide in equities amid a stronger economy may be not. Even in dire cases of equity selloff, gold failed to move up riding on higher safe-haven demand. For example, at the peak of 2008 crisis, gold was moving lower as it turned out to be a liquidity crisis that led to higher dollar price. Gold eventually started rising as the dollar started sliding.

We believe that the Gold price depends more on the value of the dollar and the purchasing power of the dollar than other factors. Hence we would like to urge our readers to keep focusing on the dollar.

We at FxWirePro have already called a buy on the gold, since we expect the dollar to start declining gradually as other central banks reverse their easing policy, https://www.econotimes.com/FxWirePro-Call-Review-Prepare-to-buy-gold-targeting-1500-area-1178189 . The trade is not in the money but the loss is not deep and the stop loss still far, especially given the target.

However, after a successful closing of our long-term short dollar call, we recently revised our outlook for the gold from bearish to neutral over the longer horizon, https://www.econotimes.com/FxWirePro-Call-Review-Dollar-long-term-outlook-revised-from-bearish-to-neutral-short-term-bullish-targets-reached-1324590

As of now, we would urge our readers (who have entered long) and those waiting at the sideline to be patient unless the proper trend becomes clearer.