Originally published by AxiTrader
Gold is sitting at $1,286 this morning. That's around $76, 6.3%, above the low when this rally began around 6 weeks ago.
It's been a sharp rally, one fueled by a weaker US dollar, heightened geopolitical concerns around North Korea, disquiet over the Trump presidency, stock markets losing momentum, and lower bond rates.
All of these factors conspired to push gold to a high around $1,300.77 in trade last Friday.
But, gold is outperforming drivers like bond rates because of other factors and as such this $1300 region looks like an important - perhaps formidable - level of resistance, and thus supply, for gold at the moment. It's a level which marks the top of the 2017 range. And it is a level that looks to require a material increase in global uncertainty and volatility to break.
It's a level that marks the top of the 2017 range. And it is a level that looks to require a material increase in global uncertainty and volatility to break.
Looking at the daily chart the ranging nature of the price of gold (XAU/USD) is obvious. As a rule I always respect important levels and trend line unless or until they break.
Of course, last week's high of gold at $1,300.77 was above the trend line. But two things are important to contextualise this.
First, gold prices promptly fell $15 in the next 12 hours as supply hit the market. That reinforces the resistance around $1,300 from medium term players. While the second important point is that $1,301 was the 138.2% target of the previous rally.
So, in both respects, mission accomplished.
But gold hasn't backed off too far which suggests it still has plenty of residual support.
In no small part that is because of the continued uncertainty around the Trump administration, the outlook fo the US dollar, North Korea, and the fact that global bond rates remain near their recent lows.
But technically we see a set up which has gold prices wedging themselves toward a resolution, a break.
In most cases the set up we see in gold is resolved to the downside with a big fall through the support line. But that's not always the case and a break above $1,301 would be a strong signal that gold is going higher.
What the exact catalyst that would do that is difficult to know ex-ante. But I could easily choose from a smorgasbord of:
- Dovish Janet Yellen causing the US dollar to collapse, Euro to break back above 1.19 or USD/JPY to trade down - maybe through - the 2017 range bottom;
- Tensions suddenly escalating again on the Korean peninsula driving safe haven flows;
- Destruction of whatever faith the markets have in president Trump such that stocks and bond rates slide;
- Or any combination of same.
On the downside, the technical case is easier to make. Gold just has to trade down and through $1,280.
What could drive that is the reverse of all of the above. Or something else entirely. It just might be traders watching a trendline and selling as prices move to, or below, it.
Have a great day's trading.