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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 68% of retail investor accounts lose money when trading CFDs with this provider.
You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Profit-taking threatens gold bulls but weakness remains an opportunity

Trading outlook:
We see some risk of near term profit-taking on gold on a risk rally. Technicals reflect this, but we continue to see gold as a medium-term buy into near term weakness.

Fundamentals/Newsflow

With broad market volatility and a risk relief rally today, gold is beginning to see some profit-taking. We continue to view the relationship between the US 10 year Treasury yield and the gold price as a strong correlation. Our chart below shows the inverted yield is a stronger mover but it does give a strong indication to moves on gold (leaving aside the margin call sell-off on gold two weeks ago). As such with the US yield increasing, gold is falling. As such the medium-term gold rally will be a function of the market outlook on US Treasury yields.

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
  • $1647 – 6th March low
  • $1642 – 23.6% Fibonacci retracement of $1445/$1702
  • $1626 – 3rd March intraday low
Resistance 
  • $1671 – intraday high 10th March
  • $1685 – 9th March intraday high
  • $1702 – 9th March high

 

Technical Analysis

On a day where volatility reached levels not seen for years and fear gauges went through the roof, gold posted a negative candle. Whilst the close was higher, this move raised a few eyebrows. The uncertainty levels over the strength of the bulls grew more overnight as gold has started to pull back. We began to look into the prospect of a small reversal pattern on the hourly chart yesterday, this pattern has completed overnight. A small head and shoulders top below $1660 (an old resistance) suggests that there could now be a retracement in the offing. A corrective move of around $40 is the implied target. This would leave gold around $1620, just above the old $1611 breakout. There are little retracement signals building on the daily momentum, with Stochastics threatening to cross lower and RSI already rolling over. This would still be just a near term pullback and we would view it as another chance to buy on a medium-term basis. The three-month uptrend comes in around $1600 today. With the recalculation of the Fibonacci retracements (of the now $1445/$1702 rally) we see $1641 as the first gauge of support, being the 23.6% Fibonacci retracement. To hang on to their gains, the bulls need to pull back above $1680/$1685 resistance built throughout yesterday’s session.

 

Richard Perry

Richard Perry

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