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Gold could pick up the entire market's idle cash and rally back to key support at $1,281

  • Gold has been quite a show overnight, rallying from the pivot on broad dollar weakness and in a sigh of relief from market participants on the back of the US PI data coming in below market expectations. Gold is currently resting up at $1,224.37 highs having travelled throughout the week so far from the depths of this weeks business down at $1,182. 

Headline CPI rose only slightly by 0.1% (0.059%) m-o-m in September, below the expectation of 0.2%.  Core CPI inflation came in at 0.1% (+0.116%) m-o-m, below  the consensus of 0.2%.  On a y-o-y basis, core CPI inflation remained at 2.2% (2.170%), below expectations  2.3% but essentially unchanged from 2.199% in the previous month. This helped the precious metal, that doesn't offer a yield to surge to the highest in more than two months while also garnering back its safe-haven status over the greenback amid a sharp retreat in global equities.

On Thursday, the Dow Jones Industrial Average extended yesterday's rout and fell a further 545.91 points, losing an additional by 2.1%, to end the day down at 25,052.83 - This has brought its two-day decline to 1,378 points. Then, looking across to China, the Chinese CSI 300 index is the lowest we have seen since summer 2016. We have a similar story over in Europea, with Europe's Stoxx index in the red by 2%, German's Dax -1.4%, France's CAC -1.8%, the UK's FTSE -1.9%, Spain's Ibex -1.7%, Italy's FTSE MIB -1.84% and Portugal's PSI 20 -0.82. 

So where now?

Under these conditions, investors are sitting on the sidelines waiting for developments. At times like this, investors are wondering what to do with their idle cash - Gold is a safe-haven in times of such uncertainty and can continue higher while markets relent to the policies of normalisation and while investors realise their profits from the longest bull run in history, umped up by cheap money - that ship has now sailed.

The market has been overinflated for a long time, and the question is whether the dip will be bought or the correction will extend for a longer period. Coupled with a US administration that is pushing an agenda of directing the dollar lower to help rebalance the US economy, at locker heads with China and the EU on trade, we could see a reigning in of the long-dollar position that was built up in the second quarter. While investors ponder of what currency could potentially replace the dollar as a safe-haven, Gold is a visible and safe bet for now - but at what level is the question?

Gold levels

Gold has already burst through daily pivot points on the resistance levels and has exceeded the $1,214 26th August highs, (100% Fibo). The next Fibo extension is located at $1,235.02 as the161.8% Fib. If there is to be a discount for bulls looking to catch a ride, the 50% Fibo of the 8th Oct bid falls in at $1,204. However, given the ground the metal has made in such a short period, the 38.2% at 1209 still come in at a good value considering what the risk-reward ratios are looking like IF the playing field laid out above is reasonably accurate. $1,320 and the $1,236 is where the gravy is at though. This would set a fresh bull precedent for longer in Gold. To get there, bulls need to cross the rising trendline support through $1,281, 28. May low.

Author

Ross J Burland

Ross J Burland, born in England, UK, is a sportsman at heart. He played Rugby and Judo for his county, Kent and the South East of England Rugby team.

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