Gold hopes to raise interest rates, and the Fed is confused

Last Friday, after the opening of the American market, more than 20 private planes took off from the center of large banks in Omaha to the palace of the old fox, Warren Buffett, after a recommendation from US President Joe Biden for them to go to him to show them the right way out of the nascent banking crisis, which is still in progress. budding yet.

Only two days later, we saw the seven major industrialized countries carrying out an unprecedented acceleration in transferring funds between them to immediately save any bank that was affected.

Fed members meet today and tomorrow to discuss the interest decision, which is expected to be issued tomorrow, Wednesday evening, with conflicting statements by the Fed members themselves about the decision, which sparked high volatility in the markets. The banking crisis is in its infancy and before the infection spreads from small and medium banks to large banks.

I do not hide a secret, dear reader, that he wishes to raise the interest, and here everyone will disagree with me, how does gold benefit from raising the interest, which is basically a decision that is in the interest of gold’s sworn enemy.

The answer to this question calls for what the managers of the damaged, bankrupt, and others on the verge of bankruptcy mentioned, when they were asked what brought you to this situation, their answer was all one, which is the high interest.

Banks, dear reader, in the United States rely on two sources of income and profit. The first and most important source is investing in stocks and bonds, and the other source is lending. When strong stocks and Walls & P indices fell, banks’ income was affected, whether from the value of shares, or even from the profits they receive from their investment. In companies, we all know that earnings have been disappointing in the past two quarters.

On the other hand, banks were unable to generate income from lending and financing small projects, due to high interest rates and high inflation, which made lending risks high. And Goldman Sachs (NYSE:) and Bank of America endured this atmosphere, but banks with low liquidity such as Signature or Silicon Valley and the First Republic could not.

Therefore, we benefit from that, because the high interest rate harms most banks now, due to the decline in the stock markets on the one hand, and the almost cessation of lending and financing, which means that the Fed’s stubbornness in raising interest rates will be in the interest of gold because it will cause more harm to the banks, and we will hear about more and potentially greater bankruptcies, and we will not Any bank, regardless of its size, is safe from this problem.

On the other hand, the banking crisis served the Fed in its war against inflation, as it caused oil to drop by more than 10%. It is no secret to everyone that the rise and fall of oil is the basis for moving the inflation index in any economy. Oil is the backbone of the economy of countries, and its rise and fall momentarily affects the economy. Inflation, which may give a reason for the Fed members to put aside the problem of inflation temporarily and devote themselves to killing the problem of banks quickly before the epidemic spreads to larger banks, as it is difficult to solve the problem at the time.

So if you see the Federal Reserve raising the interest rate, we will see the short-term speculators and the hot money will speculate on the drop in gold momentarily, but it will soon start back up again, relying on that that this hike will be like spraying more kerosene on the fire, which will intensify the banking crisis.

Either fixing interest or reducing it will lead to rapid speculation on the rise of gold, and then it will decline again after the exit of hot money, because the persistent investor in the market will know that this is in the interest of solving the problem of banks, which was the main motive in the rise of gold, and stabilization or reduction may be considered an analgesic Temporary to this problem, which will mean the absence of the reason for the rise of gold in the short term.

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Technical Analysis

The levels of $2000 an ounce were previously tested by gold twice, and both times it made a wide progress until the levels of approximately 2070, from which the decline quickly returned both times below the levels of $2000, and this behavior is completely similar to what happened with gold between 2008 and until 2010 when gold tested the levels of 1000 $ per ounce more than once and failed to penetrate it, and those areas at that time were completely new areas for gold that had not been traded in throughout history. It witnessed a sharp decline at that time during the global crisis until the levels of $670, to rise back towards the levels of $1000 again, and then succeeded in penetrating it, after Penetrating those levels, gold continued to rise to 161% according to Fibonacci levels, without stopping, until it reached $1250 levels.

Gold’s behavior during the breach of the historic $1000 levels

I mention this scenario because we are in a very similar situation, as the levels of $2070 an ounce are historical levels that gold has not traded above before, and there are no identifiable resistances, so technical analysis did not leave us like this without a solution to those situations, he told us to go to a similar situation to learn what it is The expected behavior, in that case, if we calculate Fibonacci correction from the levels of 2070 until the bottom of 1615, we will find that the levels of 161% will be at the price of 2350 for gold, and this is the behavior that is closest to happening if gold succeeds in breaching the levels of 2070 dollars an ounce.

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short term:

In the short term, we find gold trading in an ascending price channel, through which it succeeded in surpassing the $2000 levels, but it soon fell back below it after the banking problem temporarily calmed down. the bottom of the current price channel.

Therefore, we see that gold will maintain the chances of ascending as long as prices remain above the strong support levels of 1960, which, with success in stabilizing above them, will continue the rise of gold to the next resistance 1987, then the $2000 levels, waiting for the Federal Reserve to determine its fate in the short term.

But in the event that gold fails to hold on to the highest levels of $1960, this means the start of a corrective wave for gold towards levels between 1925 and 1915.

I wish you happy trading and abundant profit

Karim Ragheb – Technical Analyst

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