Chart Of The Day: Trading Gold's Contradictory Signals

According to a recent Reuters poll of 31 analysts and traders, the median price of gold will rise to $1,920 an ounce during the April-June quarter. Despite the strongest dollar in 20 years, which usually pressures the price of the yellow metal as the currency accelerates, it seems gold demand has been holding steady. The result most likely of rising geopolitical risks such as the war in Ukraine and spiking global inflation which spotlights both the safe haven nature of the precious metal and its role as an inflation hedge.

Still, among those surveyed, there was a strong consensus that the price of gold will slump later this year as interest rates accelerate. However, there's another camp that believes that if the Fed's pace of hiking is aggressive, it could undermine economic growth which would be good for the yellow metal.

With gold fundamentals currently contradictory, it's difficult to forecast whether the price will rise on its haven or hedge status or fall amid a flurry of rate hikes. The technical chart could provide some clues via the current supply-demand balance.

Gold Daily

Gold has broken through the bottom of a Symmetrical Triangle. This pattern's shape demonstrates that both buyers and sellers are serious about their positions on the precious metal and are expected to retain that conviction. Therefore, it could break to either side.

However, given that the current range is a disruption within a trend, there is an upward bias.

Nevertheless, the price did break to the downside, as bets increased about the heftiest rate hike in 20 years—with markets predicting a 50 basis point increase. Moreover, the price slipped below the Nov. 15 peak, which supported the triangle. The price has now fallen below the 100 DMA after cutting through the 50 DMA.

Still, buying has kept gold above the 200 DMA, which guards the rising trend line since the Aug. 9 bottom. Therefore, gold might, in fact, still go up.

Given the contradictions, we don't know what will happen but we're attempting to trade within the most likely scenarios. It's expected there will be overall downside pressure on the commodity which will test the uptrend line at about the $1,830 level.

While we consider the current rally a return move that follows the completion of the preceding Symmetrical Triangle, if sellers continue pressing, we could see gold tumble lower toward the $1,700 levels.

Trading Strategies

Conservative traders should wait for the price to either bounce off the uptrend line or break through the falling trendline from Mar. 8, which makes up the triangle top.

Moderate traders would do similar, but move on a bounce above the 200 DMA or above the Nov. 16 high.

Aggressive traders could sell against the rally, depending on their level of risk aversion, timing, and budget. Here is an example:

Trade Sample – Aggressive Short Position

• Entry: $1,900
• Stop-Loss: $1,920
• Risk: $20
• Target: $1,840
• Reward: $60
• Risk-Reward Ratio: 1:3