As the dust settles from another margin call sell-off, can gold once more begin to recover? We believe that this sell-off will be a good opportunity to buy once more, but confirmation signals of renewed recovery are important.
Our fears of a margin call related sell-off on gold have come to fruition. Yesterday’s sharp decline on gold, seemingly as everything was being sold off defies conventional logic. However, once there is a settling down (even if it is relative to yesterday) of sentiment, we see the attraction of gold in these markets to be strong.
For now, the gold and US 10 year Treasury yield chart correlation has become decoupled, but we expect this to reassert once the immense volatility begins to reduce.
Fundamentally we remain medium-term bullish, due to the increasingly dovish interest rate expectations and increasingly negative real yields. We see any near term weakness therefore as a chance to buy whilst markets remain spooked by Coronavirus.
- $1574 – 50% Fibonacci retracement of $1445/$1702
- $1560 – spike low – 12th March low, January 2020 high
- $1551 – intraday low 13th March
- $1604 – 3 month uptrend and 38.2% Fibonacci retracement of $1445/$1702
- $1611 – old key breakout, January 2020 high
- $1626 – old pivot and lows – 3rd March intraday low
Our fears of gold being dragged under by broader market selling pressure came to pass yesterday as the price fell -3.5% on the day. We have been looking for buy signals within the three month uptrend, but that trendline was smashed by the move and the bulls now need to regather themselves. If the move is anything like the similar, margin call related sell-off of 28th Feb, the market dusted itself down and went again higher. It is interesting this morning to see gold trading higher and already +$35 off its earlier low at $1551. Within the context of still positively configured medium term momentum signals, we remain medium term buyers of gold into weakness whilst the support at $1536 remains intact. Near term positive signals are coming through on the hourly chart this morning, but hourly RSI above 60 would be needed to say the bulls are serious again. Resistance at $1606/$1611 now needs to be overcome to suggest a resumption of the move higher. A bull failure, with a negative close and move below $1560 (yesterday’s low) would be a concern that momentum of the correction has not finished yet.