Citing its near-4% decline from the highs and exhaustion candles beneath its lower Keltner, we highlighted Gold’s potential to mean revert last week. Having rebounded 2.4% from its low, we suspect a corrective top could be in place.

 

Key points:

  • March tends to be a weak month for gold, looking at its seasonal averages
  • Gold’s performance typically deteriorates throughout Q1
  • Near-term bias remains bearish below 1311.34 – 1314
  • Longer-term bias remains bullish, so medium term outlook is pivotal around the $1275 area

 

Part of the rationale behind a deeper correction was the shift in momentum from the 1346.77 high and how it differed from the previous two corrections.

 

Previously we said noted:

During this decline, momentum has been dominant on down-days and, as this appears to be the first wave or a correction, we see its potential for it to crash lower still. However, we suspect gold is in for a bounce higher before continuing lower.

 

Now the bounce has occurred, a bearish engulfing candle (using the open-to close) suggests a swing high could be in place. Moreover, it reinforces the previous comments as the three most volatile sessions have been bearish since the 1376.77 high. Whilst this doesn’t rule out an attempt to break to a new cycle high, we favour the current bounce as corrective and for gold to head for the 1276.84 low on a technical perspective

 

 

We can see on the daily chart that the 1311.34 high stalled just shy of a 50% retracement level and yesterday’s bearish engulfing candle failed to test its high. This places a zone of resistance between 1311.34 – 1314 and in the vicinity of the broken trendline from the November low. Furthermore, the rise from 1280.81 appears corrective as it has produced 3-waves. If so, this requires a break to new lows, in line with the dominant momentum from the 1346.77 high.

 

However, keep in mind there’s a 38.2% Fibonacci retracement just beneath the January low which is an acceptable retracement level before it could turn higher. Therefore, how prices react around the 1275 support cluster is pivotal to the medium-term outlook. Ultimately, we see gold trading to new high as the year progresses, although our near-term bias remains bearish. And seasonality tends to point lower for March anyway.

 

 

Seasonality could also provide headwind for gold throughout March.

The average return for March hasn’t generally been kind to gold’s performance. Despite typically starting the year on a strong note, average performance drifts lower throughout February before averaging negative returns in March. So there is clearly a down trend of sorts as performance tends to deteriorate as Q1 progresses. Still, these are simply average returns and certainly no predictor of the future, but they do at least show a tendency, which allows us to fine tune our bias with technical analysis.

 

Over the past 30-years, throughout March, gold has:

  • Averaged a -0.89% return (-0.1% median)
  • Closed lower 64.5% of occasions
  • Posted a negative-month average of -2.8%

 

With 2 weeks left in the month we see it’s potential to extend losses and close lower. If ad when we see evidence of a base forming, we can look to revert to the bullish side – hopefully just in time for April.

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

Feed news

Latest Forex Analysis

Editors’ Picks

EUR/USD bounces-off 3-week lows near 1.1140 amid escalating trade conflict

EUR/USD managed to find some support near multi-week lows of 1.1135 and regained the 1.1150 barrier amid a broadly higher US dollar, underpinned by intensifying US-China trade war. Focus on US data, Fedspeak. 

EUR/USD News

GBP/USD keeps losses sub-1.2700 amid firmer USD, Brexit jitters

GBP/USD remains depressed near 4-month lows of 1.2686 amid broad-based US dollar strength and increased uncertainty around the last attempt to pass PM Mays Brexit deal.

GBP/USD News

USD/JPY: firmer above 110.00, bullish beyond 110.40

The US rolled back some of the sanctions imposed on Huawei. Trade tensions persist, with the OECD urging both parts to end the trade war.

USD/JPY News

Anti-EU populism rise not priced in the EUR, European election could hit Euro

The European Union is holding its Parliamentary election next Sunday, May 26th and the impact of this political event seems to be underpriced by currency markets. 

Read more

Gold hangs near 2-week lows amid fading safe-haven demand

Gold came under some renewed selling pressure on Tuesday and slipped back closer to two-week tops, around the $1274 region in the last hour.

Gold News

Majors

Cryptocurrencies

Signatures