Gold prices return to a precarious base as the US dollar regains strength

The recent decline in the value of the US dollar is being reversed as seen by the dollar index's (DXY) move higher for the second straight day. Higher US Treasury rates, with the 2-year UST, offered at 4.484% and the 10-year at 4.065%, are supporting the dollar. Neel Kashkari, a member of the Fed board, said yesterday that unless success was made in the battle against inflation, interest rate hikes may not "end at 4.5%, or 4.75%, or something like that." His remarks are helping to boost US Treasury rates. Increased US interest rates and Treasury yields continue to be major obstacles for gold.

The price action is being driven by an uninterrupted sequence of lower highs and lower lows, as shown on the daily Gold chart. The precious metal is now trading below all three simple moving averages, and the chart also features a bearish "death cross" that formed at the beginning of June.

With support at $1,615 per ounce as the initial landing point, it appears that gold will move down in an unopposed direction. Below this point, a modest swing low at $1,567/oz, reached in April 2020, is protected by round number support at $1,600/oz. Any bullish momentum will be slowed by a collection of recent highs that go all the way back to $1,688/oz.

Gold Daily Price Chart – October 19, 2022

Chart via TradingView

According to statistics from retail traders, 82.38 percent of traders are net long, with a long-to-short ratio of 4.68 to 1. The number of traders who are net-long is up 3.07% from yesterday and up 11.04% from the previous week, while the number of traders who are net-short is up 1.08% from yesterday and down 9.27% from the previous week.

The fact that traders are net-long signals that gold prices may continue to decline. We normally take a contrarian stance against the attitude of the majority. We have a higher Gold-bearish contrarian trading bias as a result of the traders' increased net-long position compared to yesterday and last week.

What do you think about gold — are you bullish or bearish? You may share your feedback with us using the form at the end of this article, or you can tweet the author at @nickcawley1.

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