Gold has fallen quite sharply at the start of this week after rallying to a sturdy area of resistance at the end of last week – more on this later. The yellow precious metal was driven lower by a combination of factors, not least the significantly stronger appetite for riskier assets due to raised hopes over a deal for Greece. After the Greek government blinked at the weekend, investors were hoping for a resolution as early as Monday which is why stocks surged higher and gold slumped. However, as it turned out, they delivered the economic reform proposals too late. The proposals also lacked sufficient detail and this made an agreement to unlock the €7.2 billion of aid impossible. However, the proposals were seen as a positive step that could lead to an eventually agreement later this week. As well as stocks, European government bond prices are also rising which is putting downward pressure on yields and in turn the euro. Consequently, the EUR/USD has given up much of the gains made over the past couple of weeks and not even the strong euro zone PMIs or the weak US Durable Goods Orders were able to support it on Tuesday. This has effectively underpinned the dollar index and in turn undermined some buck-denominated commodities, including gold and silver. Further losses seem likely now for gold, although that being said precious metals do look a little bit oversold now while Greece could still default and exit the euro zone – an outcome that would undoubtedly boost the appeal of safe havens.
From a technical point of view, gold’s pullback should not have come as a surprise after the metal had rallied at the end of last week into a strong area of resistance around $1205 where several technical factors converged. As well as this area being previously resistance, the 200-day moving average and the 61.8% Fibonacci retracement level of the last downswing all converged there. As it turned out, gold has dropped significantly from there, taking out the $1190 support in the process. In fact gold has even dipped below the long-term pivotal level of $1180. Thus, the path of least resistance continues to remain to the downside, until proven wrong. The next logical level of support is around $1165/70 which corresponds with a short-term bullish trend line. Thereafter are this month’s low at $1163 and then the long-term 61.8% Fibonacci retracement level at just below $1155.
It is important to remain objective as gold heads lower because there is always the possibility that it may have already formed a bottom. Indeed, price has already created a few “higher lows” and until it creates another lower low then one cannot rule out the possibility for a sharp rally at some point in the near future. But in the near term, for as long as price remains below the abovementioned $1205 resistance area, we would maintain our bearish outlook. If and when $1205 and the bearish trend are taken out then the next hurdle is the May high at $1332/3.
From time to time, 2021 StoneX Financial Ltd’s (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.
As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.