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July 21, 2022

Gold Hits Our Key Price Level

Frank Cabibi

Gold dropped nearly 1% this morning before finding a bottom and showed signs of rejuvenation. Settling in the $1600s, the metal saw little to no momentum to the upside for some time. But now there could be a good reason for the metal to start moving back higher again.

Big Economic Slowdown

If the Fed continues to raise rates, output will fall. Because the central bank wants to hike more and more aggressively (from .25% to .75%) this will only increase the slowdown. Businesses will have to start spending less as the amount of layoffs climb.

Goldman Sachs predicts that the job market will come in much lower going into the third quarter. The US saw nearly 400K new jobs added last month, but now they think it will shrink by over half that to a mere 150K.

Non-Farm Payroll is still adding jobs but at a decreasing rate. One key thing that drives the gold market higher is a struggling economy, and this is what investors could be trying to price in.

There is the question, however, that the Fed may consider loosening their breakneck policy on raising rates, but chairman Powell has yet to say otherwise. He stated in his last meeting that him and the central bank have an unconditional obligation on this inflation curb.

gold

COT data still shows that big money is decreasing long contracts from last week, but this week might be showing something different based on price action. We can look at some trade setups to see when big money starts buying the metal again.

Gold Key Trading Level

gold
gold

The images above are the price chart of gold paired with COT activity. We can see that price and COT data are closely correlated. There is also a pattern with every time the metal hits our second price target. Institutions start pouring money back into the commodity and send price to the $1900s and $2000s. So with that in mind, we may start to see gold move higher from this area.

The metal fell down to the $1680s which has served as a multi-bottom level of support. Each time the price has dropped to these lows, there was an eventual shift that sent price much higher. As gold hits our second price target, it's starting to look more attractive. Should the Fed continue their rate hike pace, gold could very likely find some more upside.

Price targets we are looking at for the short run are $1719, $1750 and $1780. Heavy support sits at $1679.

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