Will Gold Hold This Pivotal Level?
Fawad Razaqzada | May 28, 2020 08:20
Gold has been stuck in an ugly range for several weeks now. But more recently, the pressure has been growing for a downside breakdown as stocks surged on lockdown easing hopes and amid central bank support. Today, the metal was testing a key support level, and traders were wondering whether support will hold given the still-positive fundamental backdrop, or whether we will see at least a short-term breakdown.
Gold rallied viciously off its March lows as concerns over physical demand were offset by worries oversupply, with many mines closing down or producing at reduced capacity because of the virus outbreak. On top of this, yields were depressed by central banks announcing new rounds of QE and interest rates were slashed. Haven buying also contributed to its upsurge.
However, as risk started to bounce back, gold lost some of its appeal as investors chose to focus more on the racier equity markets, especially US technology names, over the safe-haven precious metal. So, gold’s rally came to a halt and the metal has since been trading sideways, holding for the most part above the $1700 hurdle.
Gold remains fundamentally supported and I continue to expect more gains because of money printing by central banks and low yields. However, I wouldn’t rule out short-term sell-offs here and there.
With that in mind, gold needs to hold THIS 1690-1700 support range:
If we close below then the risk for a proper sell-off would increase, especially if the metal goes on to break below its most recent low at 1670, which was the last low prior to the most recent rally. If gold goes below this level then it would invalidate the short term bullish bias. As such, we could see more liquidation.
However, if support holds here and we go back above last week’s low at 1717 then that could trigger a short squeeze rally. Ideally, we would then want to see gold break above the previous day’s high at 1735, for that will completely invalidate the short-term bearish bias.
So, those are the two alternative scenarios I am watching for gold but as I believe the long term outlook is still supportive, I would prefer to look for bullish than bearish opportunities.
Get The App
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.