Gold bounces on return of stock market volatility

The price of gold received a lift on Wednesday afternoon as volatility returned to European and US stock markets. Earlier this week, the yellow metal had fallen from recent highs as stocks regained a measure of stability after global equity markets dropped precipitously during the first trading week of the year.

Traditionally, gold has been perceived as a safe haven asset that investors turn to during times of market turmoil. While this correlation has often failed to materialize in recent times, last week’s rise in gold appeared to be a direct result of large drops in global stocks.

Late last week, this rise in the price of gold reached a two-month high of $1112 just a few weeks after forming a bottoming pattern from December’s multi-year lows around the $1050 support level. The surge broke out above a downward sloping trend line that formed the upper border of the bottoming pattern, as well as the key 50-day moving average and the $1080 resistance level.

The stabilization of the equity markets in the first part of this week has subsequently brought the price of gold back down to the $1080 level, now as support, before Wednesday afternoon’s noted bounce.

With stock market volatility not likely over yet, gold may well have significant room to rise from its current position just off its long-term lows. Any sustained breakout above the $1100 level could see a partial recovery for the precious metal, with key upside resistance targets at $1140 followed by $1170.

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