Chart Of The Day: Gold Fundamentals, Technicals Disagree On The Metal's Next Move

Fed Chair Jerome Powell testified before Congress on Tuesday and among other things said inflation is a bigger problem than the central bank had admitted until now. He added that it's now appropriate to drop the word "transient," as inflation has not proven to be a blip. As such, he indicated the Federal Reserve could trim bond purchasing more quickly than scheduled, opening the door for higher interest rates as early as the first half of 2022.

This pivot in the Fed's position—along with the path to faster tightening—should have boosted the dollar and weighed on gold. However, in Wednesday's trading, the opposite is occurring.

Fundamentally, the Treasury yield curve has flattened, which could be behind this counterintuitive market reaction. Here's what gold's technicals are signaling:

Gold Daily

The yellow metal found support at the bottom of a rising channel, the line where supply dried out and pushed prices back up to the top of the rising channel.

The ROC is showing signs of gold bottoming out.

Trading Strategies

Conservative traders should stay out of this trade as it goes contrary to the fundamental outlook.

Moderate traders would risk a long position if the price closes above yesterday's opening price, where it's trading intraday, at time of writing.

Aggressive traders could enter a long position now, with a tight stop-loss below yesterday's low, provided they accept the higher risk of moving before the rest of the market.

Trade Sample

• Entry: $1,785
• Stop-Loss: $1,770
• Risk: $15
• Target: $1,860
• Reward: $75
• Risk-Reward Ratio: 1:5