Gold jumps on 2 year high only to correct briefly

Gold was seen strengthening exceptionally in response to the geopolitical incidents which dominated the news in the previous days. The shiny metal overpassed the $1,350 psychological price and advanced even further to capture its 2 years high on Wednesday, again absorbing much volatility.

Syrian tensions which are turning into a showdown between the US and Russia, currently seem to escalate further and are influencing a number of financial instruments that are sensitive to uncertainty and fear. The situation released the bulls on golds trading during the European and North American time frame which advance constantly, surprising most analysts and traders as the positive sentiment came unexpectedly somewhat. Many traders showed confidence in purchasing gold as the price was advancing and eventually touched a high of $1,365 an ounce.

On Thursday price correction was obvious as many short-term traders were eager to lock profits gained since the previous day, with the price dropping to $1,346 approximately.

Coming from a different perspective, various Portfolio Managers have noticed a vast transition of investment from the cryptocurrency market to precious metals.

A chart of Bitcoin VS Gold provided below indicates that the two instruments are moving in the opposite directions for the past 3.5 months with the precious metal following an upward movement. Gold is favored against Bitcoin as investors utilize the shiny metal as a key defensive instrument against the weakening cryptocurrency. Gold is also a more reliable asset in comparison to Crypto’s and that gives investors more of a reason to move their money from other industry’s towards the precious metal.

Viewing Gold from a demand perspective, Chinas Gold imports have been seen to double in the first months of 2018 with data accounting for 249.5 tons shipped until the end of February. This could be due to worries created from the Trade war with the US. Competition between the two biggest economies of the world may have forced the Chinese to purchase more Gold in order to boost economic confidence for the months to come. It will be interesting to see what the reaction to demand will be, now that an agreement has been reached and worries are slowly fading away.

On the other hand, the fact that the Yuan has appreciated by 3% against the USD this year may not be as attractive for gold investors as it seems to be. Chinas domestic gold price has increased by 3.3% but the international gold price advanced by 13.1%, in 2017 according to EIKON Reuters information. We could see more investments in the very popular XAU/USD as it responds more intensively and drastically, providing a more realistic view to the International market circumstances, as studies show.

From a gold miner stocks perspective, companies could gain on their earnings going forward as Gold is slowly climbing for the past 2 years and creating higher lows. It is expected that a very strong run is ahead for Gold miner stocks.

Technical Analysis

Gold has been moving in a sideways manner since the start of the year trading mostly between the $1,348.89 resistance level and the $1,308.50 support level.

The $1,348.89 resistance level has been broken 4 times in 2018 and on the past Wednesday touched its highest price of all 4 times reaching $1,366 per ounce.

If the bulls take over the gold market we could see it stabilize above the $1,350 psychological price and aim for the $1,355.77 resistance hurdle. Gold could move even higher to the $1,360.00 resistance area if any further military actions are taken on Syria as that could create stronger demand for the shiny metal.

The current sentiment for the today 12 April 2018 is bearish and indicates that some price correction is in place. If the bearish movement continues gold could move lower heading towards the $1,339.62 support level and even breach it to reach the $1,332.89 support hurdle.


Technical Analysis for Gold

On Tuesday Gold broke $1324 support level, now turned to resistance. It is currently heading towards the $1315 Support hurdle which has been tested over 5 times in 2018. If this support level is breached , gold could be aiming for $1300 psychological barrier. However, it is our opinion that Gold could possibly continue to move in a sideways manner above $1300, as this has been the trend in the past 2 months. For our opinion to change, we would require the precious metal to have a clear break below the 1300 support line.

Gold moves sideways ahead of turbulence

Commencing on Monday, Gold opened at $1321.13 and traded in a rather sideways movement for the first 2 days of the week. On Tuesday, a minor turbulence in the market was created due to talks on the NAFTA agreement and with President Trump’s stating that he does not intend to back down on the proposed tariffs. Donald Trump was presumed to sign documents regarding the announcement of the tariffs on Thursday, however did not as it was stated that the documents had to be legally reviewed and confirmed through a legal procedure. The US president is expected to sign these documents by the end of the week possibly leaving out of the agreement neighbor countries Mexico and Canada for a 30 day exemption. This exemption is linked to the NAFTA negotiations which have not yet settled in a deal, leaving the market guessing as to where the relationships of the US with Canada and Mexico are heading to, an agreement or a falling out. Trump has threated to withdraw from NAFTA in case Mexico does not agree the US terms. With that said, it is more than evident that regarding the NAFTA agreement, the US has the upper hand and the final say. Trumps proposal of the much discussed tariffs has come under major criticism and disagreement from the general market and especially from business officials. Fears exist that the impact on the US economy could be negative. Despite the possibility of a trade war based on tariffs growing out of proportion, there could be a notion in the White House that the US may be less affected or even favored by such a scenario. As a result to that China, as well as European officials were forced to react to these comments backfiring with promised retaliations if these tariffs are set to be effective. Be advised, that the US tariffs may at the beginning affect steel and aluminum prices, later retaliations from the EU as well as China could affect a number of other industries as well. Hence, there is a possibility that a trade war will not only affect a number of economies, but also a wide range of industries. On Tuesday, markets were nervous by the unexpected resignation of chief economic adviser, Gary Cohn, who opposed Trumps political views on particular matters. Cohn was a key player in Trumps economic team and was a major architect of the tax cut plans applied recently. This incident made Gold rally as the US dollar was hurt by this event. On other news, in Great Britain, all the major banks that have been operating within the UK’s gold market are in works of changing their regulations in respect to their clearing house. After taking criticism of price manipulation from other banks and traders, the world’s largest bullion trading centre is now trying to improve the situation by giving the opportunity to new members to join the market. They believe that with these changes they can make the precious metal market more transparent towards the public and regain their good reputation. In addition, it is widely believed that Gold is considered the antidote towards all the issues creating uncertainty in the market and specifically concerning the trade tariffs, the NAFTA deal and North Korea. Traders are expected to use the Bullion as a hedge towards any losses or external volatility created from the above situations. Gold with its inverse relationship to the dollar is the perfect Instrument to hold as it tends to respond to aggressive market movement involving the US. Keeping in mind, the upcoming US Employment report is to be released on Friday the 9th of March and also the fact that the event is the biggest market mover in the FX industry on a monthly basis, strong volatility is expected to be picked up by the Bullion.