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.

Powell’s testimony helps boost the US Dollar

The dollar rallied yesterday after Chairman Powell said the Fed will continue to slowly raise interest rates for now . Powell stated, the reason was to keep inflation near its target amid robust conditions in the U.S. labour market. Comments like the job market has strengthened and inflation has increased mostly due to gasoline and energy prices stood out. He also added unemployment was at it’s the lowest and that the US economy grew in a solid pace the first half of the year. With basically a revision of the positive economic outlook in the US the USD bulls were set free during the American session.

EUR/USD dropped during Powell testimony and landed very near our 1.1640 support level. Today, in the European morning the pair could follow up on sideways movement as the financial data to be released from the Euro-zone could be neutral for the common currency. However, in the American session the pair may prove to be sensitive to the US financial data to be released or Fed Chairman Powell testimony later on. Should the pair find extensive buying orders along its path we could see it rising and breaking the 1.17150 resistance line. Should it come under selling interest by the market, we could see the pair aiming for the 1.1640 support barrier.

At this point, a small comment must be made on Crude Oil, as the commodity has dropped approximately $5 in the past 7 days. The Trump Putin meeting plunged Oil prices as comments made from both presidents indicated a joint attempt to regulate Oil prices. Also the US considerations on waivers on countries importing Oil from Iran helped drop prices.

Powell sees a stronger US economy

In his debut testimony before Congress yesterday, Fed’s new governor Jerome Powell, supported the argument for a stronger economy. Specifically, he cited possible increased budget spending and increased wages from a possible increase of productivity as main factors for a stronger economy. There were also hints for an increased number of rate hikes as well as an unwinding of the Feds balance sheet. Having said that, we would like to add that the new governor made a good impression in his debut appearance, as some analysts noted. The USD reacted positively to the testimony and we see the case for the positive effect to continue in the next few days. Please be advised that there will be another hearing of Powell tomorrow.

EUR/USD dropped yesterday, breaking the 1.2230 support level. We see the case for the pair to trade in a sideways manner with some bearish tones based on the before mentioned fundamental news and financial data which are to be released during the day. Should the bears take the driver’s seat, we could see the pair aiming and even breaching the 1.2100 support line. Should the bulls take the reins, we could see the pair breaking the 1.2230 resistance level and aim for the 1.2355 resistance zone.