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Gold is trading up over 1% today to be back above the $4,400 level currently. That chips away at some of the declines from the past few days but is this enough to signify a turnaround in price momentum for the precious metal?
Well, not quite.
What is behind the bounce in gold today?
The simplest story comes from the technical side of things. The drop in gold last week saw price fall to test the 50.0 Fib retracement level of the swing higher from July to August, seen around $4,328. That before a rebound and then a fall back after since last Friday.
The fall this week sees gold push towards a test of the 100-day moving average (red line) at around $4,343. And that is a key line in the sand as we look to the daily chart, alongside the 50.0 Fib retracement level around $4,328.
In that sense, sellers have much work to do in order to try and drive further downside pressure in gold. They will have to crack both the 100-day moving average and the 50.0 Fib retracement level (which also has some swing region support rom the mid-August lows) at around $4,328-43 in order to find more legs for a further downside run.
Could today’s bounce lead to more upside potential for gold?
Let’s not be hasty. The precious metal jumping by over 1% today is encouraging. However, even the near-term technical sentiment isn’t quite siding with gold buyers just yet.
Since late August, gold price action has fallen back below both the 100-hour (red line) and 200-hour (blue line) moving averages. That signifies that the near-term bias in the precious metal has turned more bearish.
A brief rebound last week saw price move up but fell short of even testing the key level and that is leading us to where we are now still. For buyers, they have to break the confluence of this key near-term resistance – seen at $4,422-34 currently – in order to establish a stronger momentum to climb higher.
But even then, the 200-day moving average at around $4,537 will look to cap any upside run in the short-term. That unless we see a major change in the market catalysts from the past few weeks.
The fundamental story hasn’t really changed
This is the difficult part for gold. The market narrative at the moment is clouded by the surge higher in bond yields with the US-Iran conflict still a dampener as well. Higher real yields are traditionally a headwind for gold and that seems to be what is outweighing any flows tied to sovereign debt sustainability concerns.
The debasement trade is still there but it has taken a bit of a backseat for now.
And for gold buyers, that means having to play to the tune of the bond market – especially with yields near multi-year and multi-decade highs. That until the music stops and the focus returns to mostly inflation worries and fiscal risks, allowing the debasement trade to gather more importance again.
The question then is what would it take for that scenario to happen? The cleanest transition would be for the US-Iran conflict to meet its end. However, that is something that doesn’t seem to be happening just yet.
This article was written by Justin Low at investinglive.com.
