Is Gold on a comeback?

On Monday, Gold held up the strength it gained during past Friday, which was yet one of the most aggressive bullish session the precious metal has gone through in 2018. Gold added over $15 of value in 1 day starting from the Asian session all the way to the US session, which was a runner up no one expected so powerful, on the rise. Traders were left excited and somewhat curious to what the future sessions could reveal, as Gold was considered oversold with demand to minimum levels in the past months.

The fundamentals covering the strong movement, regarding Jerome Powell’s comments were not convincing in our opinion as Gold was seen moving in a buying appetite from very early in the Asian session which indicates traders felt the precious metal’s ability to be used as a safe haven could have reenacted its comeback.

No question, the greenback was hurt as Powell spoke, reaffirming that raising rates remained the safest way to maintain the U.S. economy’s positive run. The comments found traders, short selling the US dollar as the event delivered a dovish sentiment.

On the contrary another reason was cited for Golds run up on Friday which also provides different messages for the US economy. It was noticed that, the 10-Year and 2-Year Treasury yields have been shrinking further which creates some questions regarding the real health of the economy in the US. Traditionally traders and analysts look at yields to understand the bigger picture of an economy, not paying so much attention on the fundamentals. While the two yield curves approach each other, it means that the difference between long-term and short-term rates tightens which can be a signal of possible economic weakness. There could be a positive relationship between Golds recent sharp upward movement and the uncertainty that is created from prices of bonds becoming too high while the yields dropping lower.

We would like to emphasize the pre mentioned point, by stating yield curves act as a benchmark for other debt in the market such as bank lending rates or mortgage rates. At the same time, curves are an indication of economic output and growth. Analysts are now making a case that the shiny metal is to rebound amid geopolitical tensions and a record-long bull market for U.S. equities. Let us go back to our previous report from last week when according to Reuters , financial institutions and hedge fund managers intensified their selling positions in Comex gold contracts for the sixth consecutive week. Some could say traders were quick to make a decision on the precious metal direction which on the past Friday could have hurt their interests harsh fully, knocking them into losses. It goes to show that, following the crowd comes with a huge risk when it comes to investing. However, even when it was clear on Friday during the European session that Gold was on an upswing no one was even close of imagining the total movement, which makes the event even more significant. Then again, Comex Gold call options increased in the previous week to a record 1,136 contracts, from 79 contracts on July 31, the biggest in the past two years.

In addition, Gold has been a highly underestimated instrument and was clearly overlooked for the past months as investors preferred to use the US dollar and US equity’s due to favorable economic conditions in America. We are not quite sure if Gold has made a comeback or if it will be on the rise in the following weeks but it has shown that, it still has the power to dominate the markets funds and attention. However, when the circumstances are right the precious metal will rise to the occasion.

Due to the bullish market from the previous session Golds levels have been changed because of change of trend.

If the market decides that a correction must be made for the shiny metal we could see it aim for our $1,197.27 support line and even breach it aiming lower for the $1,191.08 support hurdle.

The $1,200 psychological threshold may not be considered as a benchmark as during August the shiny metal has not stumbled across the line neither downwards nor upwards. The instrument chose to overpass it, not giving attention to the round number.

On the other side, if the precious metal continues its upward movement, we may see it breach the $1,208.35 resistance level and aim higher for the $1,214.80 resistance barrier.

Is gold having a reversed USD direction once again?

In a time when uncertainty heightens due to the worsening US-Sino trade relationships and the instability of the Turkish political scene and economy, in a time when stock-markets drop one would expect the bullion to emerge as a safe haven, have increased demand as well as prices that rally. However that was not the case in the past few days. On the contrary, the price of the precious metal dropped by almost a 100 USD and set an 18 month record low price of 1160 USD.

So has the precious metal lost its shine, is it no longer to be considered as a safe haven? Analysts, saw a positive correlation between the S&P 500 and gold for the past few days. We would also share the opinion that there seems to be a negative correlation between the USD and gold at works in the past few days. If the USD strengthened due to the tensions of the US-Sino trade relationships, as well as the worsening Turkish-US relations, then one could interpret it as a sign that the market may be seeing the case for the US economy to be in an elevated position against its rivals and being able to overcome victoriously both fronts. It would be evident that as on Wednesday, the USD had reached one of its peaks, gold reached one of its lows, while on Thursday as the USD seemed to stabilize or even weaken somewhat during the Asian session, the bullion’s prices seemed to recover, as if it was confirming the negative correlation between the USD and gold once again.

Other analysts, also raised the idea that gold may have been for sale by central banks for emerging countries. An idea which could make some sense if they would try to monetize dollar reserves in order to support their currencies, as in the current situation. Also, analysts point out that gold’s nature may have changed over the years and may no longer be so sensitive to geopolitical changes, but feeds more on news regarding the actions of central banks, especially the Fed’s. In both cases, the arguments for the negative USD-Gold correlation could remain intact if not strengthen. Apart from theorizing, it should be noted that daily average trading volumes for gold in Turkey doubled recently and probably in face of the country’s ongoing crisis, we could expect an increase in demand for the precious metal, at least locally. Also uncertainty could be rising in gold mining as South African Unions have rejected the latest pay increases offered from four producers as negotiations were drawing to an end. Talks could resume next week however the outcome remains uncertain. Sticking to South Africa and gold mining, bear in mind that Gold Fields Ltd has to come up with another plan to save its massive South Deep mine and further negative headlines could influence gold’s prices. On another positive note for gold, on Wednesday Australia’s Perth Mint is about to launch a new gold backed ETF on the NYSE, practically testing the investor’s appetite for the bullion.

Gold tumbled in the past week, reaching the 18 month low of 1160 USD support line, however rebounced and tested the 1180 resistance line today. The precious metal’s price action remained below the downward trend line, incepted since the 10th of August and tested it with little success, three times, with its latest try being today. Hence, technically we retain a bearish bias currently, for gold’s prices and in order to lift in favor of a sideways movement or even a bullish market, we would first require the bullion’s prices to break the prementioned downward trend-line. We would also like to point out, that the RSI indicator in the 4 hour chart remains near the reading of 30, implying a relatively overcrowded short position. Should the bears continue to drive the market, we could see the pair breaking once again the 1170 support line aiming for the 1160 support barrier. On the other hand should the precious metal’s price direction be dictated by the bulls, we could see the pair breaking the 1180 resistance line opening the way for the 1192 resistance hurdle maybe even taking an aim of the 1208 resistance area.

Dollar strengthens further

Yesterday, the USD reached an impressive high exemplifying its dominance compared to other currencies. Index that tracks the dollar against the euro, yen, sterling and three other currencies touched 96.794. Oil prices were supported over decreased production from top producer Saudi Arabia but corrected lower later on.

Also, yesterday Gold prices continued to plunge, pressured by rising geopolitical uncertainty and a stronger US dollar. Anyway, if the selling interest persists then the precious metal may break the 1186.47 support barrier and aim lower for the 1180.00 support hurdle. On the other side, we could see gold aiming for the 1192.31 resistance level and even break it aiming for the 1198.42 resistance barrier.