Is it time to go long on gold?

25 ביולי 2022

After the price of gold dropped for five consecutive weeks, its price has recently recovered as the US dollar weakened and Treasury yields fell to a 2-month low. With the weakening of the US dollar, should one consider going long for gold?

With the July FOMC meeting coming this week, the Us Federal Reserve is expected to raise its interest rate by 75 basis points. Although this may sound good for the US dollar in total, this rate hike may have been fully priced in by the market and is less likely to propel the USD even further to fresh new highs.

Central banks of other nations are increasing their interest rates equally or more aggressively than the US Fed, and a 75bp hike may no longer feel significant for the USD. For one, The European Central Bank surprised the markets and enacted a 50-basis points rate hike last week, double the market consensus. This sentiment toward US rate hikes may end with gold performing a reversal to the upside. This potential could be heightened if the Fed fails to deliver the expected 75bps after their next meeting.

Looking at the price of gold last week, we can see on the daily time frame that it made a bounce after creating the low at 1680.935. The MACD indicator supports signs of a tentative reversal as the blue MACD line almost crosses above the orange signal line, indicating a potential upward momentum with the Histogram closing barely above the zero line. The RSI also pushed above the 30 level on July 20, pulling out of the oversold territory and creating a buy signal. 

However, this upward push for gold may fall short if the US Fed rate increases more than expected 75-basis points in the upcoming interest rate decision. A 100-basis points rate hike may trigger a bearish move for gold, continuing the downtrend for the XAUUSD and further strengthening the US dollar.