Originally published by AxiTrader
Gold tried to break through the 200-day moving average two nights ago making a high around $1263 dollars.
Since then however it has pulled back to $1245 as the US dollar strengthened and rates rose after Fed speakers have made it increasingly clear that they are looking seriously at the possibility of increasing interest rates at the FOMC meeting mid-month.
It is in this relationship that it is clear that gold is vulnerable to a substantial pullback - perhaps even below $1200.
What's clear in this relationship - between gold and the move in interest rates and the US dollar - is the clear divergence between the continuation of the gold rally even though rates and the US dollar stabilised before rising recently (both are inverted on the chart above).
The question is whether the recent rally in gold - which appears to reflect some insurance against uncertainty around the implementation of the US administration's many policies, high equity prices, and the uncertainty of the French presidential election can persist in the face of the Fed's warning it may raise rates.
Arguably the relationship between these three asset prices suggests at the very least gold's current pricing may be out of line with what traders might think is fair value.
Looking at the chart of gold from my AxiTrader MT4 platform the failure to hold above the 200-day moving average is the first warning of a pullback. The question of how far then depends of the type of trader one is.
I like to put pretty straight forward trendlines on my charts to gauge trends and support. So in this sense the zone between $1235 and $1240 should offer some support. But if that breaks then the $1219/20 level becomes the focus once again.
Have a great day's trading.