Gold has been on a tear since the start of this year. It is one of the best performing assets so far with a 16% rise in two months. However, if you are planning to enter gold at these current levels, you are likely in for a big surprise. Gold is overbought and technical analysis is pointing to a drop in gold price to the $1,150-per-ounce level, a good 10% lower from current levels.
The equity markets are in a bounce-rally mode and likely to remain buoyant till end of March. Oil prices, which were causing a scare worldwide, are also on the mend, and the bottom is likely in place at $26-per-barrel.
The jobs data from this month has given a green signal to the Federal Reserve to move ahead with the next proposed rate hike. Whether we see a hike this meeting or next is difficult to assess, but the U.S. Dollar will likely trade with a bullish bias as long as the chance of a rate hike remains on the table.
A strong dollar dims the sheen on the yellow metal, if the dollar continues to remain strong, gold will likely come off towards our target low area of $1,150.
Technically, gold has risen from its lows without any retracement, as shown in the chart below. Though gold has broken out of its long-term downtrend, market participants should remain cautious on it. Many bulls will want to pocket their profits as gold is nearing a resistance area. The bears will enter shorts closer to resistance. With both of these events coinciding together, gold will retrace back to its breakout level.
The bulls will buy closer to $1,190, which was the earlier resistance, they will attempt to defend the level and support the market. The market can either take support at $1,190 or drop down towards $1,150 area to shake out many long positions before rising again.