Przemysław Kwiecień, PhD CFA
XTB Poland
Reversals ARE important, especially when confirmed by high volume. Thursday’s reversal in gold worked – it rallied, just as I had warned.
The funniest thing about this rally is that it has little sense, and yet it was still quite possible for it to happen. Why?
Interest rates
They were just raised in the Eurozone, which surprised the market. Theoretically, globally rising interest rates should cause gold price to decline, just as lower interest rates have caused gold price to rally. Instead, gold price moved higher.
In the short run, that can work, though. The reason is that what’s bullish for the euro (higher interest rates set by the ECB are bullish for the euro) can be bearish for the USD Index, which can in turn be bullish for gold.
The above effect was enough for gold to reverse profoundly on Thursday, and based on Thursday’s closing prices, I wrote the following:
“The markets already have a history of behaving erratically when something unexpected happens in the Eurozone, and one shouldn’t necessarily trust yesterday’s candlestick. On the other hand, even though it doesn’t make much sense fundamentally for gold to rally here (rates were hiked), the big-volume reversal could trigger a several-day-long rally (…)”
The rally is not over
That’s what happened. Gold price moved to its 50-day moving average, which might be the reason for gold to top here, but it doesn’t have to be. There is much stronger resistance in the form of the combination of two resistance lines. Besides, gold rallied on quite a strong volume on Friday, suggesting that the rally is not over yet.
Those resistance lines cross slightly above $1,960, and that’s where gold futures might top (after rallying by another $20 or so). Spot gold would also be likely to top approximately $20 higher than it closed on Friday.
Either way, a move higher here wouldn’t surprise me.
Want free follow-ups to the above article and details not available to 99%+ investors? Sign up to our free newsletter today!
X-Trade Brokers Dom Maklerski S.A. does not take responsibility for investment decisions made under the influence of the information published on this website. None of the published information can be treated as a recommendation, disposition, promise, or guarantee that the investor will achieve a profit or will minimize risk using the information published on this website. Transactions including investment instruments, especially derivatives using leverage, are in its nature speculative and can provide both profits and losses that can exceed the initial deposit engaged by the investor.
Recommended Content
Editors’ Picks
EUR/USD loses traction, retreats below 1.0600
EUR/USD lost its recovery momentum and declined below 1.0600 in the American session on Friday, erasing a portion of its daily gains in the process. Nevertheless, the risk-positive market atmosphere after PCE inflation data helps the pair limit its losses.
GBP/USD turns negative on the day below 1.2200
GBP/USD reversed its direction and slumped below 1.2200 in the American session on Friday after rising above 1.2270 earlier in the day. Position readjustments and profit-taking on the last trading day of the quarter seems to be weighing on Pound Sterling.
Gold reverses direction, drops below $1,860
Following a steady rebound toward $1,880 on Friday, Gold price made a sharp U-turn and turned negative on the day near $1,860. Although the 10-year US T-bond yield is down more than 1%, XAU/USD struggles to find demand on the last day of Q3.
Polkadot Price Forecast: DOT reversal seems inevitable after 92% correction from all-time high
Polkadot price, in nearly two years, has shed 92.91% from its all-time high of $55.09. The massive downswing in DOT has pushed it down to levels that were last seen in October 2020. Hence, the chances of this altcoin forming a bottom and rallying are high.
Earnings beat triggers Nike to spike 9%
Nike (NKE) stock has surged over 9% in Friday’s premarket, climbing above $98 per share, following late Thursday’s fiscal first-quarter earnings release. Nike beat pessimistic earnings expectations by more than 23% and hiked its dividend by 9%.