The bears are waiting for the kill lower, while the bulls are biding their time for another assault higher. Between them, another interesting thing is happening to gold prices: the lows on the market are getting higher, indicating an imminent recovery might be on the way rather than a deeper correction.
Since Friday, benchmark gold futures on COMEX have been making higher bottoms, going from $1,960 per ounce to $1,963.50 on Monday and $1,977.20 on Tuesday.
“This series of higher-lows around support coupled with horizontal resistance makes for an ascending triangle formation—very similar to what was looked at just a couple of weeks ago,” James Stanley, an independent precious metals strategist, said in a blog posted on Daily FX on Tuesday.
Setting Bullish Markers At the Lower End
Stanley said such formations were often approached with the aim of bullish breakouts, “carried by the expectation for the same strength that’s brought in bulls at higher-lows to, eventually, play through for a break of the horizontal resistance level.”
So, while resistance has held under $1,990 for the front-month October contract on COMEX, the higher lows making up the bullish trendline on the below chart [are] helping keep bulls on the bid, Stanley noted.
It “elicit(s) a diminishing impact” on the lows, although the onus was still on the bulls to push for a breakout, Stanley said.
He adds:
“Resistance has been showing signs of pressure given the recent, albeit minor higher-highs that have come-in, including shortly after the open of this week’s trade; highlighting that defense around that 1980 level may not last for much longer.”
“Just above current resistance is a major psychological level of $2,000 and, should this come into play, the natural question is one of sustainability for the bullish trend. That can be a more difficult item to project at the moment because Gold prices remain overbought from a variety of angles.”
Push Still On For $2,000
Christopher Lewis, another independent gold chartist who blogs on FX Empire, said the yellow metal was poised to go beyond $2,000, and it may take some investors time to get used to the idea, but “if we get a daily close above the $2,000 level then it is probably a signal that we are ready to continue.”
Lewis said:
“All things being equal, there is absolutely nothing on this chart that remotely suggests that you have any business trying to short gold. At this point the question is not whether to be longer short, but rather to own it or wait for cheaper pricing?”
Yohay Elam, a gold analyst who contributes to FX Street, noted that both the dollar and gold were in a pause mode awaiting nonfarm payrolls due Friday for an incisive read on the state of the US economic recovery from COVID-19 disruptions.
Both the May and June issues of the nonfarm payrolls reported outsized US jobs recovery from the pandemic, thanks to the Labor Department’s revised methodology. While the latest report for July was expected to add 1.6 million jobs, analysts said it could surprise to the upside again, delivering more strength to the dollar.
Dollar Has More Headwinds Beyond NFP
Others say the Dollar Index, which pits the greenback against a basket of six competing currencies, has more serious headwinds beyond the weekend.
“Overall, the US dollar continues to look like a buy-on-dips scenario in the near-term,” said Jeffrey Halley, senior market analyst for New York’s OANDA.
He adds:
“The price action in the bigger picture though, looks like a bullish correction to a longer-term bear market. A tentative global recovery, combined with negative US real yields, multi-trillion-dollar deficits, bottomless free money from the Federal Reserve, along with electoral uncertainty Covid-19 concerns, does not make a compelling case for Dollar strength.”