Gold Technical Analysis: Wait Before You Buy

Gold is having a good year, thanks to a weaker dollar. YTD, gold has gained 4% and I believe there is more to come.

As shown in the chart below, gold passed the four-month high of $1357 last week. As it regularly happens, financial assets tend to retrace after hitting a significant high.

The same happened to gold last week when the price retraced to a low of $1347.

As I have written before, investors buy gold to use it as a hedge against global calamity. By owning gold, they get something that has no intrinsic value on its own but one that has huge store of value characteristics. This is the main reason why gold tends to do well when the dollar is weak.

Gold’s potential has been hampered recently by the emergence of a new form of gold. To most investors, bitcoin is just another version of gold, but in a digital form. This has made gold to have slow growth.

A few things could be a catalyst for gold growth this year. First, I expect the dollar to potentially remain weak as other economies outperform the United States. Secondly, I expect the bubble on cryptocurrencies to potentially burst. Look, the blockchain technology of a shared ledger has some applications but still, it does not justify a $500 billion valuation.

In the short-term markets may expect gold to retrace about 23% to the $1334 level before initiating positions. This level forms a strong support and it is also a strong support level as shown below.

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