- Gold was capped below $2,330 this week
- US bond yields, the US dollar and geopolitical news do not appear to be determining prices at the moment.
- Course trade is favored in the short term
Gold continues to consolidate below record highs, paying little attention to movements in other markets and geopolitical headlines since early May. As such, until we receive a definitive signal on direction, range trading is favored in the short term.
You can see the sideways range gold is moving in on the four-hour chart, attracting bids below $2,286 and bids from $2,330.
Although momentum remains bullish in the near term, price action this week hasn't been too convincing, repeatedly failing to break above $2,330. This despite little movement in US bond yields and the dollar, and despite a series of new geopolitical headlines casting doubt on the prospect of an extended truce in Gaza. Reports of intensified military actions in the Middle East would normally push the price of gold higher, as evidenced by previous episodes of risk aversion.
Those looking for short-term trade ideas might consider selling just below $2,330, aiming for a return to the lower end of the current trading range. A stop above $2,332 would provide protection against a resumption of the rally. If price moves in your favor, consider lowering your stop to the entry level, providing a clean shot to the downside.
Looking at traditional gold factors, like the US dollar and US interest rates, there has been very little correlation over the past month. Gold is also not heavily influenced by geopolitical headlines, a view reinforced by the lack of correlation with WTI crude oil during the same period. As such, price signals are currently as good a guide as any when it comes to short-term directional risks.
— Written by David Scutt
Follow David on Twitter @scutty
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