Gold’s dilemma of rising geopolitical risks and bond yields
Gold investors face a key dilemma as rising geopolitical risks could keep the metal supported on dips, but higher yields continue to increase opportunity cost of holding it, esp. with USD rising...
Gold bounces back but a correction could be on the way
This morning saw gold manage rebound after Friday's bearish close, although the positive performance of European stock markets and the adverse reaction of oil to the weekend events suggest there may be diminished appetite for safe-haven assets – at least for now. The just-released strong US retail sales data has further reduced the odds of a June Federal Reserve rate cut, which bodes ill for gold. Consequently, there is a risk that gold could trend lower and extend its sell-off that initiated on Friday, when its recent surge to a new all-time high encountered substantial selling pressure in the latter part of the day, resulting in a bearish price candle on its daily chart. Let’s see if we gold bears will now re-emerge after having a torrid time in the last couple of months or so. They will certainly need to see some downside follow-through in the next couple of days to be encouraged to stand in the way of what has been a strong near 20% rally in the last few weeks.
On Friday, gold breached the $2400 mark to hit a new all-time high of $2431per ounce, as traders sought safety on reports of Iran's plans to attack Israel over the weekend, sparking demand for safe-haven assets. It then retreated by the session's end as technical signals suggested its rally had become overheated. However, the latest events in the Middle East reignited the flight to safety first thing on Monday’s session, with concerns about potential Israeli retaliation discouraging bearish bets on gold.
Still, after Friday’s bearish price action, we may well see this modest bounce fade as today’s session wears on. Should a downward correction materialise, it should be viewed as nothing more than a corrective action, likely attracting side-lined buyers at lower levels. That is unless there's a significant shift in the US interest rate outlook or a sudden de-escalation in geopolitical tensions, neither of which appears imminent in the near future.
Gold technical analysis
Following Friday’s reversal-looking price action, when the metal dropped sharply after hitting a new record high, traders will be wondering whether more short-term losses could be on the way this week, before we see fresh dip-buying again.
There hasn’t been any immediate downside follow-though so far in the day on Monday. But keep a close on $2333, Friday’s low, should we get there later on in the day. A breach below this level, if sustained, could trigger further technical selling below it, potentially leading to a drop to support at $2300 initially ahead of $2270-80 area next, which corresponds with the convergence of the short-term bullish trend line and 21-day exponential moving average.
Gold’s long-term charts certainly look bullish, but there is no doubt that prices also appear overbought on multiple time frames. Thus, a bit of further weakness in the short-term should not come as surprise.
-- Written by Fawad Razaqzada, Market Analyst at FOREX.com
Gold bounces back but a correction could be on the way
This morning saw gold manage rebound after Friday's bearish close, although the positive performance of European stock markets and the adverse reaction of oil to the weekend events suggest there may be diminished appetite for safe-haven assets – at least for now. The just-released strong US retail sales data has further reduced the odds of a June Federal Reserve rate cut, which bodes ill for gold. Consequently, there is a risk that gold could trend lower and extend its sell-off that initiated on Friday, when its recent surge to a new all-time high encountered substantial selling pressure in the latter part of the day, resulting in a bearish price candle on its daily chart. Let’s see if we gold bears will now re-emerge after having a torrid time in the last couple of months or so. They will certainly need to see some downside follow-through in the next couple of days to be encouraged to stand in the way of what has been a strong near 20% rally in the last few weeks.
On Friday, gold breached the $2400 mark to hit a new all-time high of $2431per ounce, as traders sought safety on reports of Iran's plans to attack Israel over the weekend, sparking demand for safe-haven assets. It then retreated by the session's end as technical signals suggested its rally had become overheated. However, the latest events in the Middle East reignited the flight to safety first thing on Monday’s session, with concerns about potential Israeli retaliation discouraging bearish bets on gold.
Still, after Friday’s bearish price action, we may well see this modest bounce fade as today’s session wears on. Should a downward correction materialise, it should be viewed as nothing more than a corrective action, likely attracting side-lined buyers at lower levels. That is unless there's a significant shift in the US interest rate outlook or a sudden de-escalation in geopolitical tensions, neither of which appears imminent in the near future.
Gold technical analysis
Following Friday’s reversal-looking price action, when the metal dropped sharply after hitting a new record high, traders will be wondering whether more short-term losses could be on the way this week, before we see fresh dip-buying again.
There hasn’t been any immediate downside follow-though so far in the day on Monday. But keep a close on $2333, Friday’s low, should we get there later on in the day. A breach below this level, if sustained, could trigger further technical selling below it, potentially leading to a drop to support at $2300 initially ahead of $2270-80 area next, which corresponds with the convergence of the short-term bullish trend line and 21-day exponential moving average.
Gold’s long-term charts certainly look bullish, but there is no doubt that prices also appear overbought on multiple time frames. Thus, a bit of further weakness in the short-term should not come as surprise.
-- Written by Fawad Razaqzada, Market Analyst at FOREX.com