The support that is forming between $1450/$1465 is crucial for the potential of a recovery. Rallies are still being treated as a chance to sell, but we continue to eye the prospect of a recovery on a move above $1519. For now though, given the market uncertainty, caution in a recovery is wise.
The negative correlation between gold and the dollar is increasingly strong. This suggests that if the dollar continues to surge it will be negative for gold. This remains true today as gold is dropping away. However, the dollar is massively extended and if this situation begins to settle, support should arise for gold.
It is also interesting to see that the decline on gold has now been mirrored by the negative correlation with the spike high on US Treasury yields too. In this massively dovish environment for the Fed, and deflationary forces sweeping through the world, yields will fall away. Once more this should be supportive for gold.
We still see the sell-off on gold as a near term move, and if markets can begin to settle, there should be a focus back on the fundamentals once more (enormously dovish major central banks, negative real yields and economic struggles in the months ahead). We see the fundamentals are in place for upside on gold over the medium to longer term, but for now, volatility is still too great for this position to take hold.
- $1465 – 17th March low and intraday low 19th March
- $1450 – 16th March low
- $1400 – August 2019 low
- $1500 – intraday high 19th March
- $1519 – near term pivot
- $1553 – 17th March high
We began discussing the potential for the end of the selling pressure on gold yesterday. An initial attempt at recovery faltered at $1553 before falling consistently during the session to leave yet another strong negative candle. However, coming into the European session today, there has been a pick up off the lows once more. There is still an appetite to support gold between $1450/$1465, but this is just a near term situation right now. How the bulls respond today will be interesting. The hourly chart shows that resistance has started to form between $1500 and the mini neckline at $1519 (turning into a pivot). If the bulls can mobilise and push through this resistance then the prospect of a recovery may not be so fanciful. Hourly momentum indicators are slightly encouraging but nothing yet to suggest a sustainable rebound though. Given how the market responded yesterday with renewed selling pressure, the risk remains to the downside and a breach of $1445 (the November low) would open the floodgates once more.