News & Analysis

Will gold hold its support or will the USD push it below $1660

1 September 2022 By Adam Kahlberg


Will gold hold its support or will the USD push it below $1660

Gold has dumped again after recession fears and a strong US dollar continue to grip the
market. With Gold priced in US dollars it means that when the USD is strong the price of
gold and other commodities is reduced. In recent days, following on from Jackson Hole the
price has slumped further with the question remaining? Will it drop further or hold the
support level.

The Federal Reserve came out very hawkish at Jackson hole and this spurred the USD to
keep rising. Whilst the correlation between the USD and gold is not exact, it can move
inversely of each other. In the most recent rise of the dollar, Gold has slipped substantially
and is now sitting on its long term support at $1700.

However, how much higher can the USD go? Will the future actions form the Fed be enough
to keep pushing the value up or will it become overextended and drop back down.
The argument for a further rise is that the Federal reserve has made it clear it will continue
hiking interest rates until inflation moves back towards a sustainable level. In addition, with
much of the rest of the world suffering through extreme inflation and impending recessions,
money has continued to flow into the greenback. With no obvious reason for this pressure
to ease any time soon, the price may just continue to go up.

On the other hand, with the dollar so overextended and much of the worst of interest rate
hikes already priced into the market, there may be a thought that there is only so much
more room for the USD to go up. The price is nearing 20 year highs and therefore need to
push past the conditions of the early 2000’s in order to keep rising. However, the market in
the 200’s time did not have to deal with a pandemic and barely any interest rates. These
unusual conditions may allow for more momentum for the USD.

Gold Chart

The Gold chart shows how the price was unable to break out of the downward channel and
how it bounced off the 50 day moving average. The $1665 level looms as a key level of
support and has so far been unable to break down through this level on four separate
occasions. If it does fall through, it may bring about an influx of selling.


Conversely, the USD, which is shown on a two day moving average is testing its highest
levels since 2001. With the price seemingly ready to ready to breakout and target the next
resistance point at 121.


With the market so volatile at the moment, the USD and Gold are very much in play as both
indicators of wider market sentiment and trading them by themselves.

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