Has Gold Moved Too Far, Too Fast?
Joe Perry August 13, 2019 9:33 PM
In less than 2 months, gold has moved over 150 points!
As funds move out of risky assets, such as stocks, one of the asset classes that tend to benefit the most is precious metals. With the recent onslaught of negative data (such as the recent PMI data or the ZEW data released in Europe) and negative news from around the world (including the China-US trade war, the outcome of the primary elections in Argentina, or the protest situation in Hong Kong), one of the precious metals that tends to be most attractive is gold. Simply put, gold is considered a “flight to safety” asset.
From July of 2014 to June of this year, gold traded in sideways channel between 1122.50 and 1380. However, recently, Gold broke out of that channel and has traded as high as 1531. In less than 2 months, gold has moved over 150 points!
But why has Gold halted its ascent here at 1531? One fundamental reason is that the US said today that it will delay tariffs on some items until December 15th. However technically, we can see on a weekly chart that Gold is very close to Golden Fibonacci ratio of 161.8% of the move from the highs to the lows of the trading channel of the last 5 years.
Source: Tradingview, FOREX.com
If we zoom in and take a look at a 240 minute chart, this makes our case more compelling:
- Gold has reached the 261.8% Fibonacci ratio of the move of the channel Gold was in from July 18th to August 5th.
- Gold was near the top of the rising trendline
- Gold has been diverging from the RSI since August 7th
- The RSI is in overbought territory
- At the highs, gold put in a shooting star candle, often indicative of a reversal.
Source: Tradingview, FOREX.com
As gold sold off, it did manage to hold horizontal support at 1474.2 and bounce back above 1500. China data out later and the ongoing geopolitical events need to be carefully monitored for direction. However, well defined support and resistance levels sit at 1474.2 and 1539.3.
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.