Top Story

Gold stabilises

Following a sharp sell-off last Thursday, gold prices have since stabilised. Last week’s weakness was due, among other things, to the strength of US dollar and renewed risk appetite, which saw US stocks rebound after a small pullback the week before. But as mentioned then, I continue to think that the downside could be limited for gold due mainly to the recent falls in global bond yields and the fact that the Fed has dropped its hawkish bias. Although they have rebounded, yields remain near their recent lows and barring a sharp recovery, this should help to boost the appeal of noninterest-bearing precious metals on a relative basis. In other words, the opportunity cost of holding gold has fallen, relative to, say, a few months ago. Last week’s sell-off came on the back of a sizeable rally that started last August. A correction was always needed to shake out the weaker hands and encourage fresh “bargain hunting” in gold.

Interestingly, the metal continues to hover around the technically-important $1290 level, which we had highlighted on Thursday as a potential support. Here, it may have created a potential reversal stick yesterday. If the metal now starts to form a base above yesterday’s high of $1292/3 area then we could see the sellers move out of the way quickly in light of the above fundamental considerations. Thus, a potential rally from here would not come as surprise to us. The last time gold fell this sharply was at the start of March, but then also there was no follow-through to the downside. Could we see a similar pattern unfold this time? Gold will still need to reclaim that $1300/$1305 area to repair some technical damage and lure the buyers back in. However, more pain could be on the way should the most recent low around $1281 gives way first.


Source: TradingView and FOREX.com.

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 Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.