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Gold rallies to test key resistance

Fawad Razaqzada Fawad Razaqzada 14/10/2021
Gold rallies to test key resistance Gold rallies to test key resistance
Gold rallies to test key resistance Fawad Razaqzada
Gold and silver have extended their gains for the third consecutive day, but now face a key test. The test comes from both technical and fundamental points of view, as investors gauge the strength of $1800 resistance and weigh the impact of surging inflation against the prospects of policy tightening from central banks.

Over the last few days, precious metals have been supported by a drop in US dollar (mainly against commodity dollars), while finding relief from a pause in the bond market sell-off. Yields have fallen despite the FOMC meeting minutes and Fed commentary being hawkish. I believe this is because the Fed’s tapering plans were already priced in, and so the FOMC’s meeting minutes revealed no real surprises in that regard. The small drop in yields has helped to reduce the opportunity cost of holding gold on a relative basis, at least for now.  

Gold has also been supported because of inflation. Some investors view the metal as a means of hedging against rising prices eroding the value of fiat currencies. Yet, higher inflation calls for tighter monetary policy, which should mean higher yields… and higher yields is normally bad news for gold. So, the metal remains stuck between a rock and a hard place, despite its impressive comeback.

But something will have to give soon. But for now, trading the ranges will remain the dominant theme. If investors start to believe that an aggressive Fed policy will mean inflation will be snuffed out quickly, then it will not have to tighten too much down the line. This may be one explanation behind the yields drop, and what might support gold going forward, although I am not entirely convinced by this logic just yet.

Either way, let’s see if gold will manage to break through THIS key resistance area circa $1800 or run into selling pressure again:

gold
Source: ThinkMarkets and TradingView.com

Here, the 200-day average meets the shorter-term bearish trend line, the point of origin of the prior breakdown and the mid-point of the 61.8 to 78.6% percent Fibonacci retracement levels. The confluence of several technical levels makes $1800 a key technical zone.

Whatever happens here, this should lead to further follow-through in that direction. A clean breakout could pave the way towards $1835/45 area, which is the next key resistance zone, while a breakdown could see prices go down to support levels at $1781 and then $1770, before deciding on the next move.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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Meet our contributors
Fawad Razaqzada
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Fawad Razaqzada
Market Analyst, London

Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms. He leverages years of market knowledge to provide retail and professional traders worldwide with succinct fundamental & technical analysis. Fawad also offers trading education to help shorten the learning curves of developing traders.
 
His colleagues consider him an expert at reading price action on the charts. This together with his deep understanding of economics and fundamental analysis, and trading experience, puts him in a great position to forecast short term price movements. Fawad covers a wide range of markets, including FX, commodities, stock indices and cryptocurrencies and his comments are regularly quoted by the leading financial publications such as Reuters and Market Watch. In addition to ThinkMarkets, Fawad also provides analysis and premium trade signals on his own website at TradingCandles.com.
 
 

Carl Capolingua
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Carl Capolingua
Market Analyst, Melbourne

Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions. Specialising in Australian and US stock markets in particular, Carl uses a top-down approach to assess the global macro picture before using both technical and fundamental techniques to select stocks. He regularly appears as an expert commentator on a number of media outlets throughout the Asia-Pacific region.
 
 
 

Kearabilwe
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Kearabilwe Nonyana
Market Analyst, South Africa

Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives. His career in the financial markets has seen him hold various positions in global investment banks and global CFD and Spread betting firms. He has deep interest in using quantitative methods to help him understand and teach the fundamental drivers of asset prices.
 
 
 

Fawad Razaqzada
Fawad Razaqzada
Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms.
Carl Capolingua
Carl Capolingua
Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions.
Kearabilwe
Kearabilwe Nonyana
Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives.

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Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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