Gold bulls surpass prior YTD highs, stochastic overbought, trade optimism very alive and well

  • Gold has continued its advance and is taking on the 78.6% Fibo (1322) of the 2018 swing highs and 2019 swing lows, positioned through the Fibo scoring a high of 1327, up from a low of 1320. 
  • The greenback is tucked in below the 97 handle, correcting off the London session lows of 96.65, tarnished by optimism over Sino/US trade talks and dovish Fed rhetoric. 

Gold prices were on the bid at the end of last week as the dollar fell, reaching a two-week peak up at $1,322.56/oz spot. The price has gathered pace, initially with Asia stepping in from the 1320s to 1325 before the Europeans faded the price back to 1320 support. Gold has since rallied in London to aforementioned highs where it drifts sideways. 

This is more of a dollar story and the lack of confidence that the market wishes to give at this stage of Q1 2019 following the switch-up at the Fed from hawkish to neutral/dovish. In fact, the futures markets are now pricing in a 10% Fed cut in December. While there was not much of follow-through from the latest U.S. retail sales, it is a thorn in the side for the dollar bulls, at last for the short term and leaves the outlook for gold better bid at this juncture. 

Asian stocks advance on trade talk optimism 

On the trade front, however, global stock prices have benefitted from the optimism. The Shanghai composite rallied around 2.68 percent to close at about 2,754.36 while the Shenzhen component added 3.954 percent to fclose at approximately 8,446.92. The Shenzhen composite also advanced y 3.705 percent to end at around 1,440.95. Hong Kong's Hang Seng index added 1.5 percent while Japan's Nikkei 225 ended 1.82 percent to close at 21,281.85 after a jitter open where traders were not quite sure what to make of the weekend China press that warned of cautious optimism over the trade talks. However, the optimism didn't quite spill over into European markets as the dollar's weakness weighed on multinationals and trading volumes were down due to Wall Street being closed for the Presidents' Day holiday. The FTSE 100 index was down almost 17.21 points or 0.24% to 7,219.47as cable climbed 0.25% to 1.29231 and the pound rose by 0.19% versus the euro to 1.1432.

Gold levels

On a techncial basis, however, buyers are likely to have stopped bidding with stochastic oscillator now overbought above 80 until the monthly sticks which still offer upside potential. However, daily RSI is not quite overbought, but well on its way as well. The price is now through R1 and YTD highs with R2 located up at 1329 now. However, a 50% mean reversion of the move will take the yellow metal back to 1316 and bears can target the 1318 prior pivot point.

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