At what level is gold a buy?
Tony Sycamore September 11, 2019 6:02 AM
After rallying strongly in August, the easing in U.S. – China trade tensions, the calming of events in Hong Kong and the decision to approve a law to delay Brexit has resulted in the price of gold falling 4.5% the past four days. With the market holding its largest-ever speculative long gold position and growing signs of bearish divergence via the RSI, most will agree the gold market was vulnerable to a pullback.
After rallying strongly in August, the easing in U.S. – China trade tensions, the calming of events in Hong Kong and the decision to approve a law to delay Brexit has resulted in the price of gold falling 4.5% the past four days.
With the market holding its largest-ever speculative long gold position and growing signs of bearish divergence via the RSI, most will agree the gold market was vulnerable to a pullback.
During the same four-day time period, U.S. 10-year Treasury yields have moved sharply higher, albeit from very low levels. As the chart below illustrates, the price of gold and U.S. yields are generally negatively correlated. Gold falls when yields are rising and vice versa.
For traders wishing to assess whether the recent fall in the price of gold represents a buying opportunity, it’s important to consider how much further U.S. yields can rally from their current price of 1.71%.
As the chart below shows, after falling from 3.25% in October 2018 to 1.43% last week, there is room for the current rally in U.S. 10-year yields to extend back towards 1.80%/2.00% in coming weeks, before the downtrend resumes.
Keeping the short-term view for further gains in U.S. 10-year yields in mind, the recent fall in gold to the $1484 overnight low is likely to be just the first leg or Wave a of a corrective Wave IV pullback. While a countertrend Wave b towards $1525 is possible, the wave count suggests that gold should ultimately retrace back towards the $1450/$1430 support area to complete Wave c of Wave IV.
In short, we will wait patiently for better levels to buy gold. Should the pullback play out as outlined above, it will be viewed as a buying opportunity looking for gold to push above $1600 for Wave V.
Source Tradingview. The figures stated are as of the 11th of September 2019. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
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