Gold shakeout may not be over, though downside could be limited
Last week I warned that gold’s gains appeared dubious, and that they could sucker-punch bulls. And it seems they did. And while I suspect another leg or two lower, we could find its downside limited when we weigh up the supporting factors for gold.
Share this:
Last week I warned that gold’s gains appeared dubious, and that they could sucker-punch bulls. And it seems they did. While the low-liquidity rally continued a touch higher than I had in mind, momentum most certainly turned lower on Monday with a bearish engulfing candle. Not only did it respect trend resistance from the record high, but the engulfing candle formed around 2720 resistance and the weekly VPOC (volume point of control) I had originally pencilled in as a potential reversal point.
I therefore suspect we could see prices recycle lower within the ascending triangle. But I am also on guard for a downside break and retest of the November low.
Before we get all-out bearish, there are many supportive feature for gold, a market which seems far more likely to print new record highs this year than not. It remains in a strong uptrend on the weekly chart, which is bobbing nicely along the 20-week EMA. A small symmetrical triangle or pennant appears to be in the making and last week’s bullish candle was accompanied with strong volumes. Fundamentals also remain strong.
- The uncertainty around a Trump Presidency is likely to see gold attract safe-haven flows
- Central bank buying remains strong According to gold.org
- ETF inflows pushed assets under management to a record high of US$271 billion
- While physical gold trading gold volumes were down -24% in December, they were up 39% overall for the year
Gold futures market positioning – COT report
Futures market positioning also any retracement may be on the small side. Large speculators and managed funds remain heavily net-long but without being at a sentiment extreme, and both sets of traders increased their gross-long exposure which pushed net-long exposure higher. Speculative volume (volumes for both traders combined) also increased for the first week in three while gross-short exposure remains low.
Gold futures technical analysis
The decline from the monthly R1 (2735.8) and trend resistance appears to have come in one wave, which suggest at least one more leg lower. A mild bounce from the cycle low is in motion, and the bias is to fade into moves up to 2700 in anticipation of a move down to the monthly pivot point (2666.5).
-- Written by Matt Simpson
Follow Matt on Twitter @cLeverEdge
How to trade with City Index
You can trade with City Index by following these four easy steps:
- Open an account, or log in if you’re already a customer
• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
- Search for the market you want to trade in our award-winning platform
- Choose your position and size, and your stop and limit levels
- Place the trade
Related tags:
Latest market news
Open an account in minutes
Experience award-winning platforms with fast and secure execution, and enjoy tight spreads from 0.5 pts on FX and 0.3 pts on indices.
Economic calendar
Web Trader platform
Our sophisticated web-based platform is packed with features.
Related articles
Oil Quietly Hands the Fed a Reason to Stay Hawkish
Oil prices and the U.S. dollar are both on the front foot as elevated energy costs feed Fed warnings that inflation may prove sticky.
S&P 500 forecast: Stocks extend drop as correction risks grow
US and global equity markets have extended Wednesday’s sell-off, with Wall Street opening lower after a weak handover from Asia and Europe. The deterioration in risk appetite has been spreading across global markets. The dollar was firmer, Treasury yields were holding onto yesterday’s gains, while gold, silver and bitcoin were all under pressure alongside equities and major currencies.
Gold forecast: XAU/USD could take a larger dive after the big rise in yields
Gold prices have been falling in the last few days after last week’s post-FOMC pop faded amid rising interest rate expectations, higher oil prices and a strengthening US dollar. As before, I wasn’t convinced gold would thrive in the current macro backdrop.
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
StoneX Financial Pte. Ltd. is not under any obligation to update this report.
Trading CFDs carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.forex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.