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Is it safe to buy gold after a record seven straight down months?

on Nov 7, 2022
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  • Gold price might have formed a triple bottom pattern but only a move above $1,720 would confirm it
  • The recent US dollar weakness helps the gold price's bullish case
  • Signs of downtrend deceleration were visible in October

At the end of October, gold posted a record seven straight down months. The decline is unusual considering the high inflation worldwide and gold’s role as a hedge against the rise in the prices of goods and services.

Based on the 2022 performance so far, one may argue that gold has lost its role in portfolios and does not act as an inflation hedge anymore. However, recent price action suggests that gold price might have carved a bottom.

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The US dollar’s strength weighed on gold

One reason for the gold price’s weakness is the US dollar’s strength. The dollar rose across the board as investors looked for a safe haven in the world’s reserve currency during rising inflation.

But the dollar’s rally appears to have ended. All major US dollar pairs, such as the EUR/USD, AUD/USD, or GBP/USD, are well off their lows.

As such, if the FX market tells us something, it is that the gold price might have already bottomed.

In any case, at the end of October, signs of the downtrend’s deceleration were visible, as measured by the 200-day Z-score.

A triple bottom might be in place

The price of gold has found strong support in the $1,640 area. It failed to hold below for three consecutive times, giving hope for a triple bottom reversal pattern to be in place.

Gold chart by TradingView

A triple bottom is a major reversal pattern that forms at the end of bearish trends. However, unless the market climbs above the previous lower high, the triple bottom might just be the base of a descending triangle – a bearish pattern.

Therefore, gold bulls might want to wait for the price to climb above $1,720 before going long. On such a move, the price of gold will be well above the downward trendline, and the rally should intensify.