Is It Time to Go Long on Gold?

Is It Time to Go Long on Gold?

Gold has recently halted its downward slide, prompting traders to question whether it’s time to go long. While there are some indicators suggesting a potential reversal in gold’s fortune, the upcoming actions from the US Federal Reserve could significantly impact the precious metal’s price.

Recent Gold Price Movements

Gold has been on a decline for five consecutive weeks but has recently shown signs of recovery. This bounce comes as the US dollar weakens and Treasury yields fall to a two-month low. The relationship between gold and the dollar is key—when the dollar weakens, gold typically strengthens, making this an attractive moment for potential long positions.

Technical Indicators: MACD and RSI

Several technical indicators are suggesting that gold could be poised for an upward move:

• MACD: The blue MACD line is nearing a cross above the orange signal line, which often signals the potential for upward momentum. The MACD histogram is also closing slightly above the zero line, reinforcing this bullish outlook.
• RSI: The Relative Strength Index (RSI) recently pushed above the 30 level, moving out of the oversold territory. This is often seen as a sign that the selling pressure may be waning and that buying momentum could take over.

US Federal Reserve’s Influence

Despite these bullish signals, there’s a major risk factor looming: the US Federal Reserve’s upcoming interest rate decision. The Fed is widely expected to raise rates by 75 basis points at their next meeting, which would typically strengthen the US dollar and put downward pressure on gold. However, it’s worth noting that this rate hike is largely priced into the market, so the effect on the dollar may be less significant than expected. Moreover, central banks in other regions, like the European Central Bank, have also been raising rates aggressively, which could mitigate the dollar’s strength.

Risk of a Larger Rate Hike

If the Fed surprises the market with a more aggressive rate hike—say, 100 basis points—it could strengthen the dollar further and trigger a bearish move for gold. In this case, gold could continue its downtrend, as rising rates tend to reduce the appeal of non-yielding assets like gold.

Conclusion

There are signs that gold may be due for a reversal, especially as the dollar weakens and key technical indicators suggest upward momentum. However, the risk of an aggressive rate hike by the Fed could undermine this potential. If you’re considering going long on gold, the outlook appears cautiously optimistic, but it may be prudent to wait for confirmation post-FOMC meeting or look for a more favorable entry if the rate hike is less severe than expected.