Time to Buy Gold (Again)?
Gold prices may indeed be under pressure along with “risk-on” sentiment in the capital market sector and rising interest rates. Even so, quite a number of analysts argue that there is a possibility that the price of gold will experience a recovery because the precious metal can really provide “protection” against risk.
When this article starts writing, the price of gold when trading in the range of $ 1217 per troy ounce. Since June 6, 2017, the price of gold has seen a decline to the range of $ 1204 per troy ounce, which is the lowest level since March 16, 2017. From a fundamental analysis point of view, there are several factors that led to this weakening, one of which was an increase in interest rates by the Federal Reserve then it turned out to add to the positive sentiment for the USD. As a result, the price of precious metals whose notes are denominated in USD is under pressure.
Nevertheless, the inflation rate of the United States (US) has the potential to provide its own benefits for gold prices, given that gold is still seen as a hedging instrument for inflation.
Nitesh Shah, a commodity analyst at ETF Securities, argues that US inflation has the potential to continue to rise to above two percent. Plus, US-North Korea tensions are still going on. This will provide an opportunity for gold prices to recover at least until the end of 2017.
Position of Investors
According to UBS, the transaction position of market participants currently supports the recovery of gold prices. Net long position – which means investors still believe that gold prices will still move up – in gold has decreased by 53%, or 12 million troy ounces, in the past four weeks.While the net short position – which investors believe prices will go down – has increased.
Don’t be fooled, this condition has the potential to limit the market’s “selling power”. This condition has the potential to make the market assume that prices have experienced a significant decline and think that this might be the right time to buy.
Time to Buy?
Gold prices tend to rise again when other sectors are considered bad.The best performance of gold prices is usually when central banks lose the trust of investors (market participants) over the policy steps they take.
For example, the price of gold and silver (apart from the recent flash crash ) is likely to experience a significant increase if the European Central Bank (ECB) and perhaps even the Bank of England (BoE) follow the steps of the Federal Reserve (Fed) cut stimulus.
What is the potential for gold price movements from the standpoint of technical analysis?
In terms of technical analysis we can see that the gold price is currently in the long-term support area at the range 1194.88-1218.73. We can see on the Daily chart (D1) that stochastic and CCI tend to show bullish indications. This means there is an opportunity for the gold price to experience a rebound for the long term.
Technically, as long as the gold price holds above 1194.88 there is a potential rebound to the resistance area which is in the range of $ 1245 to 1272.02 per troy ounce. If you open a position of 1 lot on the current XAUUSD contract (the price is in the range of $ 1217 per troy ounce) then the risk of loss that you will face is only $ 2500 per lot, while your potential profit is around $ 3000 to $ 5000 per lot.
The current risk to reward ratio comparison is quite good, provided you really take into account the capital strength and implement the right risk management strategy.