On Tuesday, the precious metal gold slipped to 4-month lows of 1,266 due to stronger dollar and risk on sentiment. Basically, there are two main reasons behind this massive sell-off, and I’m going to shed some light on them:
Robust earnings reports out in the US served to drive equity markets to fresh highs overnight. That triggered buying in the stock market and a sell-off in the gold, as these both are considered substitute of each other. The other major US indices also had big days with the S&P closing 0.88% up and the Dow 0.55% in the black. Stock and bullions also share a negative correlation. Thus a bullish trend in the stock market is weighing on gold.
Besides the stock market, the US dollar also shares a negative correlation with gold. A rise in the dollar value makes gold unattractive for foreign investors; they, therefore, diminish the demand for gold.
Looking at the technical side, gold can find support around 1,271 and 1,265. While as per descending triangle breakout, the precious metal can also lead towards $1,250 this week. The idea is to stay bearish below 1,276 with a take profit of around 1,270 and 1,265. Good luck and trade with care!