The near term corrective force on gold is difficult for the bulls to get a handle of. We still believe that gold will be higher over the medium to longer term, but we must wait for signals to buy. For now the technicals remain negative.
The sell-off on gold went even deeper on Friday as the dollar soared and almost everything else suffered. Margin calls have been a big reason behind the decoupling of gold from its correlation with US Treasury yields (we show this chart of a negative correlation, by inverting the US 10 year yield). The worse the market turmoil gets, we are likely to see gold struggle as investors are forced to sell/close out their gold positions in portfolio liquidations.
However, if and when markets can begin to settle, with the enormous dovish move from global central banks, negative real yields and economic struggles in the months ahead, we see the fundamentals are in place for upside on gold.
- $1525 – intraday low 16th March
- $1506 – 13th March low ($1505 is the 76.4% Fibonacci retracement of $1445/$1702)
- $1487 – old December 2019 high
- $1550 – intraday high 16th March
- $1574 – 50% Fibonacci retracement of $1445/$1702
- $1597 – 13th March high
We have been seeing an acceleration in the correction on gold. It had looked early on Friday that there was support beginning to form, but as the US session took over a near -6% decline wiped away those hopes. Even into today, with the initial reaction higher on the dovish Fed, gold is again pulling lower. This reaction gives us concerns over our long held view that weakness will be bought into. Right now, the momentum of this selling pressure is a huge weight on the price. The market has now closed below $1536 which was the key support from January and momentum is increasingly turning negative now. To say that gold is trading lower than it was since before the market had even heard of Coronavirus, is incredible. The bulls will hang on to the fact that an uptrend dating back to July 2019 has held, but the negative near term technicals are eating ever more into the medium to longer term outlook. The rising 144 day moving average is at $1525 today. The RSI shows that near term corrective moves have found support consistently around 35 before the bulls resume control. This is a crucial moment for the bulls now. With Coronavirus and astounding levels of dovish central bank moves, all convention says that gold should be moving higher. Right now, the technicals say differently.