Gold prices last week showed strong growth momentum, coming close to the historical highs recorded two months ago. The initial movement began to run out of steam near the level of 2415, and now there is a small corrective pullback. Nevertheless, technical indicators point to the chances of further increase in the price of the yellow metal. In the coming days, the bulls could make another attempt to update the record price of gold.
It’s indicative that the surge of activity in the global gold market occurred with a very modest participation of China. According to the World Gold Council, China’s lull continues amid expectations of lower prices for the yellow metal. In June, gold withdrawals from the Shanghai Exchange were one-third worse than last year’s figure. The People’s Bank of China (PBOC) didn’t replenish its reserves for the second month in a row. Only the dynamics of gold ETFs with a new liquidity inflow of 3 billion yuan ($429 million) was positive.
TD Securities analysts believe that the gold market is able to show new highs even without active purchases from China. The weakness of demand in China is compensated by India and Poland. In addition, the PBOC will sooner or later return to building up the reserves of the yellow metal. Now gold’s share in China’s reserves is only 5%, while the optimal share is 15–25%.
TD Securities experts also noted the improvement of traders’ expectations regarding the easing of the Fed’s monetary policy in early fall. After the report on inflation in the U.S. in June, the probability of reducing the key rate at the meeting on September 18 jumped to 90%. Under such conditions, traders again see high potential for gold prices growth, even if the physical market of the metal shows more modest results.
A decline in gold prices to the level of 2390 will make building up long positions even more attractive. Then the price is likely to resume its upward trend and approach the level of 2415 again.
The following trading strategy can be suggested:
Buy gold when the price falls to the level of 2390. Take profit — 2415. Stop loss — 2370.
Traders can also use a Trailing stop instead of a fixed Stop loss at their discretion.
