Gold has struggled over the past several months, trading sideways in a choppy range. However, it appears to be forming a large descending triangle and is currently trading just above a key support zone between $4,375 and $4,485.
A break below this support area would be a very negative development for gold and may suggest a decline towards the $4,000 region. In addition, momentum has continued to weaken, with the Relative Strength Index (RSI) trending lower and potentially poised to accelerate to the downside.
One reason gold may struggle going forward is that the dollar has begun to strengthen. The Dollar Index appears to be consolidating within a cup-and-handle pattern on the daily chart, which could see it rise towards 100.5. That would place the index in a strong position to break out and move even higher. A stronger dollar would, of course, be a significant headwind for gold. Longer-term, the dollar index also appears to be in a process of completing a rounding bottom.
Additionally, higher oil prices have pushed both interest rates and real yields higher, increasing the carry cost of holding gold. As a result, gold is facing several headwinds that could make it more difficult for prices to strengthen and move higher.
However, if tensions in the Middle East were to ease, leading to lower oil prices, and gold were able to break above resistance around $4,600, it could trigger a rally towards the $4,800 to $4,900 region.
For now, though, unless something fundamentally changes in the outlook for the dollar and interest rates, the headwinds facing gold appear to be building.
Written by Michael J. Kramer, founder of Mott Capital Management.
Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed.
No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction, or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
A break below this support area would be a very negative development for gold and may suggest a decline towards the $4,000 region. In addition, momentum has continued to weaken, with the Relative Strength Index (RSI) trending lower and potentially poised to accelerate to the downside.
One reason gold may struggle going forward is that the dollar has begun to strengthen. The Dollar Index appears to be consolidating within a cup-and-handle pattern on the daily chart, which could see it rise towards 100.5. That would place the index in a strong position to break out and move even higher. A stronger dollar would, of course, be a significant headwind for gold. Longer-term, the dollar index also appears to be in a process of completing a rounding bottom.
Additionally, higher oil prices have pushed both interest rates and real yields higher, increasing the carry cost of holding gold. As a result, gold is facing several headwinds that could make it more difficult for prices to strengthen and move higher.
However, if tensions in the Middle East were to ease, leading to lower oil prices, and gold were able to break above resistance around $4,600, it could trigger a rally towards the $4,800 to $4,900 region.
For now, though, unless something fundamentally changes in the outlook for the dollar and interest rates, the headwinds facing gold appear to be building.
Written by Michael J. Kramer, founder of Mott Capital Management.
Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed.
No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction, or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
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