Economic Analysis

There have been no major changes in the Fed's policy, so gold is still bullish in the long term. However, it is overpriced in the short term.

Gold futures fell sharply on Wednesday as the US dollar stabilized after weeks of slumping and relatively more stable US Treasury yields. The first signs of weakness began to emerge last week when gold failed to rally amid escalating tensions between the US and China.

However, since we do not only think of gold as a safe investment, this step was not surprising. Our work places great emphasis on the relationship between US Treasury yields and gold prices.

The excessive bullishness by some analysts was one of the most bright signs of an imminent sell-off. One went so far as to suggest that gold will not drop below $ 2,000 due to the simmering relationship between the US and China. The US and China still do not get along, Trump still wants to block TikTok and the coronavirus cases in the US are still on the rise. Another thing that surprised investors was the rapid turnaround in the US dollar after weeks of plummeting.

On Monday, I saw some analysts saying that gold was trading higher at the request of the safe haven, and then the same analysts said on Tuesday that gold was trading lower due to the safe haven demand for the US dollar. Then they replaced the word "gold" and put the US dollar in and said, "In times of geopolitical risk, some investors turn to the US dollar in search of safety." The same argument they were making for being bullish on gold only a few days ago.

The net result pays attention to the relationship of gold to interest rates. Gold is an investment. Treat it as if you want a stock or whatever you want to appreciate. Moreover, you have an exit strategy.

The latest rally began from $ 1,819.30 to $ 2,089.20 on Jul 14. And the 50% retracement zone to $ 6.18 is $ 1954.30 to $ 1922.40. This is the first value area. It is currently being tested.

Short-term traders may like the buying side here, hoping for an increase to cover intraday short positions, to $ 2000 to $ 2008.40. The long-term bulls may see the area as just better prices than $ 2,089.20.

Short-term expectations

The trader's reaction to $ 1954.30 to $ 1922.40 will be very important over the coming period. In the near term, the demand for the US dollar should determine the direction of gold. In the long term, gold will be guided mostly by interest rates and Federal Reserve policy.

There have been no major changes in the Fed's policy, so gold is still bullish in the long term. However, it is overpriced in the short term.

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