Gold volatility with the prospect of another bout of near term profit-taking

Trading outlook:

Gold pushing above $1700 today is positive, but given the huge volatility throughout major markets and a negative candle formation developing today, the outlook is uncertain on a near term basis. We are still bullish gold on a medium-term basis, and any near term weakness is a chance to buy.

Fundamentals/Newsflow

Safe havens are in favour throughout major markets, but it is interesting that gold has pared gains today. With equities getting smashed, could there be a fear that gold could be dragged in with the broad sell-off? On Friday 28th February, gold inexplicably fell when there was a rout on Wall Street and a raft of margin calls meant that long positions on gold futures were forced closed. This created a near term (near -4%) sell-off on gold. This is the big caveat that is facing traders long and bullish of gold.

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.

Support

• $1657 – Intraday low, 9^th March
• $1647 – 6^th March low
• $1642 – 23.6% Fibonacci retracement of $1445/$1702

Resistance 

• $1702 – intraday high, 9^th March high
• $1754 – November 2012 high
• $1795 – 2012 high

Technical Analysis

Gold has hit $1700 for the first time since 2012 today, but has already instantly pulled back. Price volatility remains distinctly elevated, with the Average True Range of $37 already almost having been seen. Momentum is positive, still rising, but given the extreme nature of market swings right now, the prospect of a retracement needs to be considered. There are hints of a potential negative divergence to watch for on the daily chart, hints that are greater on the hourly momentum indicators. Under $1660 support on a closing basis would be asking some questions of the bulls. Then the retracement potential rises. 23.6% Fibonacci of now $1445/$1702 comes in at $1642, whilst the $1611 breakout is also supportive.