Gold price is ready to bounce but dollar strength still a downside risk

Gold price is ready to bounce but dollar strength still a downside risk by Neils Christensen for KitCo News

Resilient strength in the gold market, as prices bounce off critical support, is creating some optimism that the precious metal is ready to break its chains and push higher next week.

December gold futures last traded at $1,947 an ounce, up nearly 2% from the week.

“Last week, we were testing support at the 50-day moving average and now we are up on the week challenging the 20-day moving average,” said Charlie Nedoss, senior market strategist with LaSalle Futures Group. “I think the path of least resistance is up.”

Nedoss said that he would like to see gold prices close the week above $1,954. He added that ultimately the uptrend is still intact as prices trade above $1,941 an ounce.

Analysts note that rising inflation pressures continue to put pressure on real yields, which is a positive environment for gold; however, on the other side, some analysts have said that in the near-term, investors need to pay attention to strength in the U.S. dollar index.

“The U.S. dollar has found a footing and that will make it tough for gold to gain ground in the near term,” said Adam Button, chief currency strategist at Forexlive.com.

How to trade gold that has nowhere to go

With gold stuck neutral and volatility falling, Darin Newsom, president of Darin Newsom Analysis, said that now is a good time to play the options market.

“You want to buy options when volatility is low and sell options when volatility is high. Right now, volatility in gold neutral,” he said.

Newsom said that he is bearish on gold as the technical chart looks heavy; however, he added that investors can’t ignore the fact that gold is holding critical support, even in an environment of resilient equities and a stronger dollar.

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