Top Story

Gold shines even if US stocks defy gravity; Trump in focus

Gold ended its winning streak on Monday as traders eased off the gas ahead of tonight’s much-anticipated speech by US President Donald Trump and this week’s other fundamental events. The precious metal is little-changed so far in today’s session but the lack of any follow-up selling pressure could be a sign for concern for the bears. Indeed, despite this week’s hesitation, gold remains in a strong upward trend and probably in the watch list of many potential buyers. The metal’s recent strength in the face of a generally strong dollar and rapidly rising US equity prices is remarkable and unambiguously bullish. After all, a rising stock market usually suggests investors are seeking racier assets over perceived safe haven gold and silver. But apparently this isn’t the case. So, it does make you wonder what is really going on. Is gold about tank or the stock markets? Of course both could go up together as they have in recent times, but typically they have a negative correlation. Given the almost parabolic-like rally in the US stock markets, I do wonder for how much longer the bulls will be able to sustain this rally. It would not come as a major surprise to me if those who bought stocks in anticipation of Trump’s fiscal plans now take off their positions and thus cause the indices to retreat. But there is no way of knowing this in advance. As far as gold is concerned and given its recent positive relationship with US stock markets, it may not respond to the equity markets in the usual negative way in response to Trump’s speech. But it could nevertheless move sharply if there is a correspondingly big move in the dollar tonight.

Gold’s strong bullish trend intact

Gold is currently stuck in a rather strong bullish trend as characterised by shallow retracements followed by quick trend resumption. Thus, Monday’s retreat from the 200-day moving average, while noticeable, could prove to be another ploy to get the bears trapped before it continues higher. Monday’s pullback occurred after a three-day up move. So it may well have been driven by profit-taking from the bulls rather than short selling from the bears. Whatever the reason, until and unless there is a break in market structure of higher highs and higher lows, there is little reason to feel bearish on gold. Either that or if we see some bearish price action beforehand. Consequently, I am expecting the last resistance area of around $1240-44 to now turn into support, should gold get there. As things stand only a break below the last significant low at $1231.50 would render my bullish view invalid.

Now, there is a possibility that we may see more decisive bearish price action around some important levels that are fast approaching. At this stage, though, it is impossible to predict what kind of a reaction, if any, we will get should gold get to those levels. In any case, it is always worth noting them in advance in case we do see a trend reversal. As per the chart, $1269 was the last support level prior to the breakdown. Once support, this level could turn into resistance upon re-test. Slightly higher, around the $1275-85 area, is the convergence of the bearish trend line with the 61.8% Fibonacci retracement level against last year’s high. What gold may do next will depend, in part, by price action there: a sharp rejection could see it pull back in a meaningful way, otherwise it will be a case of onwards and upwards. 

Source: eSignal and

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.