Gold Begins To Rebound, But Is The Support Sustainable?

Gold Begins To Rebound, But Is The Support Sustainable?

Hantec Markets  | Sep 29, 2020 10:03

Trading outlook:

After a short consolidation gold has picked up. However, is this a sustainable recovery? There is plenty of overhead supply to prevent the gold recovery from continuing. We still look to dollar moves to be the main driver of gold, so with broad market sentiment sitting at a crossroads, we see an uncertain near term outlook for gold.

Fundamentals/Newsflow

This is an uncertain time for gold. As the dollar has tailed off slightly, gold has picked up as the negative correlation between the two remains strong. We have been positioned for a near term USD rally/gold correction before both these trends eventually turn around for medium term USD weakness/gold strength.

The moves in the past 24 hours (USD lower, gold higher) leaves an uncertain outlook. Dollar Index back around 94.00 is a key crossroads.

Dollar Index Daily Chart

There is support 93.50/94.00 and whilst USD holds on to this support, we see the recovery outlook for USD as being intact. Therefore, with the negative correlation with gold, it suggests that this bounce on gold may only be short lived. There may be further weakness on gold in the coming days.

The near term outlook for both could be determined by the development of the US fiscal support package. If this is passed by Congress, then this would significantly improve risk appetite and hit the dollar. By extension it would also support gold which has seen its positive correlation with US equities back on track (after a wobble yesterday morning).

Emini S&P Futures Daily Chart

We still would see near term gold weakness as an opportunity. Looking longer term, we believe the outlook for gold will be driven by a “lower for longer” dovish Federal Reserve monetary policy outlook. The September FOMC decision shows willingness to accept higher inflation and not hike rates until 2023. This will help to underpin gold in the months and likely quarters to come. Continued looser for longer global monetary policy will keep real yields subdued/negative and should mean that gold remains attractive. Subsequently, this is still a good environment to be buying gold into supported weakness.

Support

  • $1866 – intraday high, 25th September
  • $1848 – 24th/28th September lows
  • $1835 – 38.2% Fibonacci retracement of $1451/$2072

Resistance

  • $1887 – intraday high 29th September
  • $1894 – near term pivot
  • $1902 – 26th August old key low

Technical Analysis

Gold has been in decisive correction mode recently, but this move has slowed in recent days. Now, having posted a “bullish engulfing” one day candlestick, the buyers are looking to bounce back. The question is whether this is a sustainable recovery. This leaves the outlook at an intriguing stage. Key supports were broken during the correction, to leave old bulls sitting in stale positions. How they respond to a rebound could be key, as a near term rally could simply be seen as a chance to close these old long positions. The daily chart shows resistance above $1902 from the old August into September range, whilst nearer term the hourly chart shows resistance around $1882/$1894.

Gold needs to post a series of positive candles to improve confidence once more. Another positive candle today would help, but this resistance band needs to be broken, this means a close above $1902. The hourly chart shows holding above $1866/$1878 is needed to sustain the near term rally. A renewed bull failure today would put support at $1848 back under pressure along with the 6 month uptrend.

STRATEGY: The selling pressure may have eased, but the outlook for a sustainable recovery remains uncertain. Selling into strength is our preferred near term outlook as we see further scope for a move towards $1818/$1835. However, dollar moves are key and once the near term dollar rally has played out we would be looking for supported weakness on gold to be a good chance to buy for the next medium term bull run. A close back above $1926 is needed to sustainably improve the outlook now.

XAU Daily Chart

XAU Hourly Chart

"""DISCLAIMER: This report does not constitute personal investment advice, nor does it take into account the individual financial circumstances or objectives of the clients who receive it. All information and research produced by Hantec Markets is intended to be general in nature; it does not constitute a recommendation or offer for the purchase or sale of any financial instrument, nor should it be construed as such.

All of the views or suggestions within this report are those solely and exclusively of the author, and accurately reflect his personal views about any and all of the subject instruments and are presented to the best of the author’s knowledge. Any person relying on this report to undertake trading does so entirely at his/her own risk and Hantec Markets does not accept any liability. """

Original Post

Hantec Markets

Related Articles

Latest comments

Add a Comment
Please wait a minute before you try to comment again.
Discussion
Write a reply...
Please wait a minute before you try to comment again.

Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.

English (USA) English (India) English (Canada) English (Australia) English (South Africa) English (Philippines) English (Nigeria) Deutsch Español (España) Español (México) Français Italiano Nederlands Português (Portugal) Polski Português (Brasil) Русский Türkçe ‏العربية‏ Ελληνικά Svenska Suomi עברית 日本語 한국어 简体中文 繁體中文 Bahasa Indonesia Bahasa Melayu ไทย Tiếng Việt हिंदी
Sign out
Are you sure you want to sign out?
NoYes
CancelYes
Saving Changes

+

Download the Investing.com App

Get free real time quotes, charts and alerts on stocks, indices, currencies, commodities and bonds. Get free top of the line technical analysis/predictors.

Investing.com is better on the App!

More content, faster quotes and charts, and a smoother experience is available only on the App.

';