Sunsetting on a golden run

Despite expectations to the contrary, it turned out to be a relatively orderly month-end. Warnings such as the one from the Global Foreign Exchange Committee highlighted earlier in the week, appear to have prompted institutional participants to transact their rebalancing flows over a longer period, rather than leave them all until the last day of the month.

Without the anticipated end of month buying, U.S. equities retraced lower. The S&P 500 falling over 1.50%, ignoring chatter of a “Phase 4” COVID-19 stimulus relief plan, a U.S $2tn spending package on new infrastructure. Whether an infrastructure bill would receive bipartisan support remains to be seen as historically both sides have disagreed on how best to fund these types of measures.

Also falling overnight, gold, following reports that the Russian Central Bank, who have accumulated $U.S 40 billion of gold over the past five years, would cease buying gold from April 1^st.  While no explanation accompanied the news it is thought that the Russia along with other crude oil-producing countries, currently reeling from a crude oil price war and soft demand, might sell gold reserves to increase cash reserves.

While the underlying macro picture remains supportive of gold i.e. COVID-19 concerns and unprecedented monetary easings, the news out of Russia does remove a pillar of support for gold. This subtle macro change can be noticed on the chart below.

Following golds dramatic fall from the$1703 high, it held and bounced from the support at $1451 which was the 38.2% Fibonacci retracement of the move from December 2015, $1046 low to the recent $1703 high. This led to an expectation written about on the 18^th of March for a move higher in gold as outlined below.

“After this week’s pullback to the $1451 low that neatly tagged the 38.2% Fibonacci retracement of the rally from the $1046 low from 2015 to the $1703 high from two weeks ago and with positioning much cleaner after the recent flush AND with more fiscal and easing reasons than previously, we feel gold is well placed to recover lost ground.”

However, the rally from the $1451 low stalled and now begun to reverse from ahead of resistance near $1650, which comes from the 78.6% Fibonacci retracement of the fall from $1703 to $1451.

The price action seen overnight warns that gold has commenced Wave C of Wave IV lower, towards $1400 a move that ultimately should present an excellent buying opportunity. We will remain with this lower before higher view unless gold breaks back above resistance at $1650ish.

Source Tradingview. The figures stated areas of the 1^st of April 2020. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation