is once again showing a strong positive correlation with equity markets, with the metal rising nearly 2% and futures up by around 1.45% by mid-morning London trade. The risk-sensitive commodity dollars were also up sharply against the US dollar, while the safe haven Japanese yen was down across the board, with the up 0.5%.
Meanwhile, the likes of the and were flat, leaving the marginally higher on the session. In other words, gold was higher despite a slightly firm US dollar and positive risk appetite. Risk sentiment took a boost from optimism that the US Senate is getting close to ending the US government shutdown.
If this happens, we will have plenty of economic data that has been delayed and that could provide further clarity for the Fed and investors alike.
Keep an Eye on Stock Markets
Traditionally, gold and stocks used to go the opposite directions to one another, which made sense: risk off, and you sell your stock holding to buy haven assets. But that relationship has broken down in recent years, with gold and S&P 500 going up and down almost in unison.
Now, the reason I mentioned this relationship is due to the fact that we have recently seen some volatility in the tech space, causing the major US indices to come off their record highs. While index futures were up sharply today, it remains to be seen whether there will be follow-through in buying momentum in what will otherwise be a quiet week for data. A lot will depend on the direction of , a single stock that has become so important that it can move financial markets with it.
Granted, there is the fresh weakening of the US dollar amid signs of weakness in the labour market, as reported by Challenger earlier last week, and the drop in consumer confidence, as reported by the UoM on Friday. Both point to potential weakness for the US dollar and gains for gold. However, as the metal has been trending in the same direction as equity markets, therein lies the problem.
Gold Technical Analysis and Levels to Watch
I think it is fair to say that the $4K level is super important insofar as gold’s short-term direction is concerned. This level was tested multiple times in the last couple of weeks, and we saw prices dip below it several times.
Yet, we didn’t get any sharp follow-through on the downside, which always meant that any movement back above this psychological handle would ignite technical buying above it. Lo and behold, that’s precisely what has happened today, after prices broke above here and Friday’s high of $4,027.
The key question now is whether the metal can hold the breakout, and we kick on from here, or will this turn out to be a false dawn? While no one knows for sure, it is important to now watch the broken levels closely and react if things start to break down. Among the key short-term support levels to watch is Friday’s high of $4,027 and then the $4,000 level.
The bulls wouldn’t want to see the price now go back below this $4,000 – $4,027 range. If it does, then we will have a clear warning sign that a deeper correction might be on the cards. The next level of support is just below the $3,930ish area – marking last week’s low. Take that out, and $3,900 could be the next stop, but then why stop there? Why not dip even lower?
Meanwhile, on the upside, $4080-$4,0100 is the next potential area of resistance. It is where gold needs to climb above to trigger further technical buying above it.
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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.