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.