Will Gold Get The Last Laugh?

It’s safe to say it’s been a volatile week for markets and a bad one for stocks. But, with the rout showing early signs of abating, we’d like to finish the week focussing on a market which went up this week.

At the beginning of the month we highlighted Gold’s potential to break higher. Noting the general lack of mean reversion throughout 2018’s decline, signs of bearish capitulation at the lows along with extreme short positioning, we felt gold was “vulnerable to rapid short-covering if market sentiment changes abruptly”. Well, sentiment certainly changed and gold’s prospects have picked up.

Using a simple, equally weighted gold basket against FX majors, a broad-based breakout is more than apparent. As the weekly chart is rising against a basket of currencies it means Gold’s breakout isn’t exclusively around a weaker USD. It’s also interesting to note the gold basket broke its prior swing high last week, ahead of XAU/USD.

Switching to the daily XAUUSD chart, yesterday’s close of 2.3% was its most bullish session since June 2016 and means that the five most volatile sessions since the 1160.25 low have been to the upside. With a higher swing low and decisive break out of consolidation, it sends a change of trend warning. It would be nice to see 1214.35 hold as support, but we see its potential to test the 1236.32-1242.72 zone and 1265.96 high if the 1180.82 low holds.

Given the extreme positioning its possible recent developments (or beatings) on the stock market could rekindle investors love of gold for more than two minutes. Shocks are quicker than recoveries, so perhaps this will play to into the hands of gold bugs, even if stock markets are beginning to show signs of modest stability.

Share: Analysis feed

CFD and forex trading are leveraged products and can result in losses that exceed your deposits. They may not be suitable for everyone. Ensure you fully understand the risks. From time to time, City Index Limited’s (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material. As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed