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January 25, 2022

Gold- Should You Now Bet On A Breakout?

Frank Cabibi

An uncertain Fed statement has helped the price of gold go higher on the day because traders do not know whether to expect increased hawkishness or dovishness. Price of gold bullion is up 0.32% on the day along with the dollar which is up 0.28%.

What Could Cause Gold To Breakout

One thing that could help gold breakout of its long term wedge would be for the Fed to take a more dovish stance. In recent weeks, unemployment claims have been coming in higher than expected. This could be an alarming sign to the Fed who wants to tighten policy very soon. They may have to back track and wait for the economy to adjust and recover before hiking rates.

unemployment claims

Last week's claims shot way higher than the predicted 223K which is the most number of jobless claims since October last year. A slower US economy is always bullish for gold, so we may see some upward movement this week. However, it mostly depends on what traders interpret from the FOMC tomorrow at 2 p.m. EST and what the plan of action is going forward.

Reasons for a bearish case on gold can be found here.

Trade Setup

gold
Gold takes another test at the top of a falling trend line on the 1D chart. Price seems to move along with the dollar move even though they usually act as inverse relationships. If gold can break out of the wedge, we may see another test at $1878.

Overall, it looks like we could find some upward pressure in the short term (as in this week). However, it is tricky to determine where price is more likely to go from here. I can see a test in the $1870s, but I do not think it has much more room to to from there. Unless we get a more dovish statement from the Fed, we may not see a $1900 gold price.

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