The dollar shows signs of revival and the gold price is one of the first to react. It broke out of a rising channel and the bears’ focus now shifts to the market reaching the previous lows.
Gold moving lower shows investors appetite for riskier assets. We should not be surprised to see the gold price falling even more if we consider that investors liquidate gold positions to jump into what appears to be the theme of the year – the reflation trade.
The only thing that does not fit the picture is the dollar. In a reflationary trade, the dollar should weaken. However, the dollar has a strong comeback in the last two days, as most majors are down and gold falls too. Moving forward, it is worth mentioning that not even one investment house predicts a higher dollar at the end of the year, and that might be a contrarian trade. Should the dollar continue to strengthen, the price of gold will keep falling.
Gold Price Technical Analysis
From a technical perspective, the recent break below dynamic support opens the gates for more continuation. Bears would want to stay on the short side, place a stop loss order at the previous highs and target the December lows in the $1,780 area. This way, the risk-reward ratio exceeds the minimum requirement of 1:2.