Are we seeing the first signs of a correction in gold?

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This has been a very interesting year for investors and traders who have been active in gold. There have been two full trends that contained both a multi-month rally and a multi-month correction. During the first week of January, gold was already in rally mode and opened at $1,827 on the first day of trading, January 3. By March 8, gold had traded at its highest value this year at $2,078 per ounce. The result was a rally in which gold gained approximately $251.

What followed was an extended multi-month correction from March 8 through the last week of September, when gold traded as low as roughly $1,620. Gold would test this level three times from September through the first week of November. During this correction, gold would trade through a series of multiple lower highs and lower lows, giving technical confirmation that gold was fully immersed in a bearish scenario.

Another indication was the positioning of three moving averages that moved into a full bearish alignment (chart 2 above) that continues to this day. The full bearish alignment using three moving averages results in the longest average (200 days) having the highest value, followed by the 100-day moving average below and the 50-day moving average below. Currently, the 200-day moving average is $1,808.60. The 100-day moving average is $1,727.50 and the 50-day moving average is $1,681.

Chart 3 is a four hour candlestick chart of gold futures highlighting the last three highs. After gold reached its highest value this year in March, gold prices fell and could be characterized by four consecutive lower highs. However, as you can see in the chart above, the first two lower highs occurred in mid-August, when gold peaked at $1825. That was followed by a lower high at $1,738 during the early part of October.

Gold reached roughly $1,620 for the third time in early November, marking the end of the multi-month correction and the beginning of a rally. Gold hit a high of $1782 yesterday and in the last 24 hours it has moved lower in price. As of 5:16 pm, Gold futures Eastern Standard Time are currently pegged at $1762.80 after taking into account today’s drop of $13 or 0.73%. This indicates the possibility that yesterday’s high marks the end of this leg of the current rally and could be followed by a correction that sends gold lower in price. If the current correction results in a higher low than the last low, we would get confirmation that the multi-month correction is indeed over.

The fall that occurred in gold in the last 24 hours is based on recent comments by members of the US Federal Reserve in which they indicated that they would not abandon their current aggressive monetary policy to continue reducing inflation to an acceptable level. . Core PCE is still at about 6%, which is three times the Fed’s target level of 2%.

While the amount of each rate increase could be reduced, its ultimate goal is still to bring inflation close to its target level. So while we could see interest rate hikes of 50 basis points instead of 75 basis points, the Fed signaled today that it will continue to raise rates until its target of reducing inflation is met.

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Wishing you as always good trade,

Disclaimer: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a request to make any exchange of commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept responsibility for loss and/or damage arising from the use of this publication.

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