2022-11-23 • Updated
Usually, the gold price is driven by political and economic uncertainty, like economic crises, election pressure, pandemic effects. But in the face of a year-and-a-half-lasting monetary stimulus program, the price of the haven asset acts differently. What drives gold price and how to trade it – in this article.
Fundamental analysis of gold should start with an explanation of gold nature. In the past, there was the Gold Standard. It was a system under which nearly all countries fixed the value of their currencies in terms of a specified amount of gold or linked their currency to that of a country that did so. Also, the supply of gold hasn’t been increasing greatly with time. Thus, when the amount of money was increasing (inflation rises), to buy the same amount of gold we needed an increased amount of currency. Since the economic crises usually come with high inflation, gold has become the haven asset for every country.
But nothing lasts forever, and in August 1971, US President Nixon severed direct convertibility of US dollars into gold. From this very moment, gold has become a more independent asset, but the rules of the game didn’t change much. Demand for gold is still high due to several factors: gold is resistant to corrosion, easy to process, hard to imitate, and looks beautiful (the last factor is subjective).
From this point we have several considerations about gold price movements, let’s go through them:
Let’s go through several economic events and check whether they are affecting XAU price or not:
To sum up, this data, even if the events and the results are the same (March 31 and September 1), gold can act in a completely different manner. Besides that, we can expect gold to rise when any data is bad for USD and vice versa. This can be proven by looking at XAU/USD and US dollar index charts, or by looking at correlation charts.
XAU/USD daily chart (top) and US dollar index daily chart (bottom)
USD and gold correlation chart (10 years period)
As you can see on the charts, most of the time gold and dollar gave an inverse correlation. It means that when the dollar is gaining new highs, gold is under pressure and vice versa.
So far (September 13, 2021) the economic recovery is not as fast as everyone wants and while tapering has been postponed, again and again, the demand for the US dollar is present and gold is not in a good shape. You might think: “Wait, if the economy is in a bad shape, then it’s good for gold, isn’t it?” Yes, usually in times of uncertainty gold is showing better results than other assets, like stocks and currencies. But this doesn’t mean that gold doesn’t fall at all.
From the side of technical analysis, gold is looking bearish too.
XAU/USD weekly chart
Support: 1750.0; 1685.0
Resistance: 1840.0; 1900.0
Gold is a perfect instrument to keep your money safe because it tends to maintain its purchasing power and save you from the volatility of other assets, but as global markets tend to rise on a bigger time scale, gold won’t earn you a lot.
Bearish scenario: Sell below 2200 / 2194 ... Nearest bullish scenario: Buy above 2197... Bullish scenario after retracement: Consider buys around each indicated demand zone
Bullish scenario: Intraday buys above 2160.00 with TP: 2171 and TP2: 2177 // Bearish scenario: Sells below 2177 with TP1: 2150, TP2: 2142, and 2126
This article uses price action and volume profile techniques to address a fundamental and technical perspective based on the daily chart analysis of spot gold (XAUUSD).
Jerome H. Powell, the Federal Reserve chair, stated that the central bank can afford to be patient in deciding when to cut interest rates, citing easing inflation and stable economic growth. Powell emphasized the Fed's independence from political influences, particularly relevant as the election season nears. The Fed had raised interest rates to 5.3 ...
Hello again my friends, it’s time for another episode of “What to Trade,” this time, for the month of April. As usual, I present to you some of my most anticipated trade ideas for the month of April, according to my technical analysis style. I therefore encourage you to do your due diligence, as always, and manage your risks appropriately.
Bearish scenario: Sell below 1.0820 / 1.0841... Bullish scenario: Buy above 1.0827...
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Don’t waste your time – keep track of how NFP affects the US dollar and profit!
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