Gold ($Gold - main 2206(GCmain)$ has been trading lower since March, with recent price action breaking below its key support of $1,680 and hitting a 2.5-year low. Gold bears have an overall near-term technical advantage given the recent technical breakout which targets $1,580. The precious metal has been trading in a downtrend since reaching a high of $2,078 in March 2022, with the price consistently posting lower lows and lower highs, which is the pre-requisite for a bear market. The daily RSI indicator has been fluctuating below 60% over the past five months and is firmly in its bear market range.
The relentless appreciation of the U.S. dollar on the foreign exchange market and rising U.S. Treasury yields are negative elements that have been keeping buyers of the precious metal at bay. After hitting a low of $1,622 last week and daily oversold momentum readings, the price of gold has staged a mild rebound amid slight drop in the U.S. dollar index and in Treasury yields; however, we are of the view that the buying interest is likely to be short-lived.
The bounce was also supported by the Bank of England's intervention to avoid gilts (i.e. bonds issued by the UK Government) from crashing which sent global bond yields sharply lower. This is a good reminder that gold will do well once the global bond market selloff is over. Therefore, we are of the view that once interest rates reach their terminal rate in 2023, gold will find a rock-solid support. Until then the price of the yellow metal is likely to remain under selling pressure.
Up until this part of the article is the weekly technical analysis series prepared by my colleague Violeta. I'm posting them here on TTM on her behalf.
This brings us to an opportunity for tactical trading opportunities. Consider the fact that the VanEck Gold Miners ETF derives a directional and enhanced response to gold future rates.
This means that it should be possible to make bets in either direction of the gold futures rate using either instrument. For tactical trading, there are a number of Exchange-Traded Products (ETPs) available on the TIger Brokers platform that can be used. Plus, ETPs limits losses to amount invested and don't require maintaining of a margin. Depending on the type of underlying, there are two options:
- If the bet is on gold ($SPDR Gold Shares(GLD)$), then one can make a daily-rebalanced leveraged exposure on its movements with ETPs using this as an underlying asset. For the upside, there's $GLD3. For the downside, there's $LS -3X SHORT GOLD ETP(GL3S.UK)$.
- If the bet is on capturing enhanced movements in the ETF, then one can "pile on" the benefits by using the ETPs using this as an underyling asset. For the upside, there's $GDX3. For the downside, there's $GDMS.
If traders are nimble, they can use 3x ETPs to take advantage of expected short-term rebounds, and the -3x ETP to capture expected declines.
For articles on broader economic events that are tangential to tactical market movements, visit asianomics.substack.com
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