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Gold Price Analysis: XAU/USD runs into supply at a 50% mean reversion confluence

  • The price of gold has met a supply area and a confluence of a 50% mean reversion.
  • US politics is taking the limelight, but the US dollar could surprise many if the 5th-wave emerges. 

Gold prices have fended off the dollar strength in the recovery from the 93.50s and restest of the 93.90s on the day, as measured by the DXY. 

Gold has retained a bid, up some 1.20% at the time of writing having travelled between a low of $1,884.72 and a high of $1,912.66.

There has been a whirlwind of political headlines throughout the day which has made for a turbulent session or two in the financial and commodity markets.

Brexit and US Congressional headlines have kept traders busy and the risk-off metals bid. 

News that Steven Mnuchin and Nancy Pelosi are keeping the wheel turning for a new round of fiscal stimulus is breathing life into the reflation trade. This has weighed on the greenback in its downward trajectory into the 93.50s. 

However, there is news that Pelosi and US present Donald Trump are not in agreement about the coronavirus aid.

Conversations will continue in the afternoon that is expected to keep uncertainty ticking in stocks this week and thus support precious metals. 

''The latest news has turned the tide for inflation expectations and the USD, with renewed dollar weakness on the day helping turn one of golds key drivers back in its favour,'' analysts at TD Securities explained. 

''But with that said, while the recent headwind of fiscal uncertainty has been eased, the other major hurdle to another gold bull run in the near term still remains in the form of deflationary pressure from mounting concerns of a second wave. ''

US data firming

Meanwhile, US data showed that initial weekly jobless claims for the week ended Sept. 26 were reported at 837,000 with the previous week's level revised up to 873,000, the Department of Labor said Thursday. The headline was expected as 850,000. Somewhat encouragingly, the four-week moving average was 867,250, down from the upwardly revised prior week's level of 879,000. 

In other data, the IHS Markit final September manufacturing Purchasing Managers' Index headline was 53.2, marking the highest since early 2019.

However, the data was missing expectations and against the 53.5 preliminary reading and 53.1 and the 53.5 headline.

"US manufacturers rounded off a solid quarter which should see the sector rebound strongly from the steep second-quarter downturn," IHS Markit economist Chris Williamson said. "Encouragingly, companies reported an [marked] upturn in demand for plant and machinery, which suggests firms are increasing their investment spending again after expansion plans were put on hold during the spring. Similarly, fuller order books helped drive further job creation as firms continued to expand capacity." 

Gold levels and DXY levels

The chart above illustrates the latest developments in what appears to be the makings of the 5-wave pattern in the DXY.

If the 4th wave is coming to completion, this will be a hurdle for the gold bulls with price potentially topping in the 1900s on the 15-min chart:

On the daily chart, the price is meeting a key resistance structure having already completed a 50% mean reversion. 

A potential bearish impulse could be in the makings here.

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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