Gold shines at new seven-month high on sharp plunge in equities

The further plunge in global equity markets that has marked the beginning of this new trading week has understandably helped to prop up certain assets that are considered safer alternatives to volatile stocks. These "safe haven" instruments include the Japanese yen and gold.

In the case of gold, this persistent volatility in equities has been joined by a recent drop in the value of the US dollar along with lowered expectations of further Fed rate hikes this year, all of which have helped to prop up the price of gold. This price movement is partly due to the fact that gold is denominated in US dollars, so an inverse correlation exists between the precious metal and the dollar. Additionally, if interest rates do not continue to rise in the US, there will be less of a reason for investors to abandon gold, which is a non-interest-paying asset.

From a technical perspective, the price of gold for the past three months has formed a rounded bottoming pattern with its lowest points just under the key $1050 support area. After those lows were reached in December, gold has risen rather erratically, but began to accelerate in a sharp incline in late January.

Since then, price action has climbed above several key resistance levels and factors, including the $1100 level, the 200-day moving average, the $1140 level, and most recently, $1170. Monday has seen a further rise to re-test and then tentatively break out above the resistance imposed by October’s $1191-area peak, resulting in a new seven-month high.

Technically, this breakout is highly significant and underscores the strong bullish momentum that is currently driving the price of gold. With continued stock market volatility along with dollar weakness due to low rate hike expectations, the next major upside target for gold currently resides around the $1225-1230 resistance area, last reached in May of 2015. Above that, on any further upside momentum, is the major $1250 resistance objective.

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.

The markets are moving. Stop missing out.

OPEN AN ACCOUNT