Market News & Analysis

Top Story

Has Gold Moved Too Far, Too Fast?

As funds move out of risky assets, such as stocks, one of the asset classes that tend to benefit the most is precious metals.  With the recent onslaught of negative data (such as the recent PMI data or the ZEW data released in Europe) and negative news from around the world (including the China-US trade war, the outcome of the primary elections in Argentina, or the protest situation in Hong Kong), one of the precious metals that tends to be most attractive is gold.   Simply put, gold is considered a “flight to safety” asset. 

From July of 2014 to June of this year, gold traded in sideways channel between 1122.50 and 1380.  However, recently, Gold broke out of that channel and has traded as high as 1531.  In less than 2 months, gold has moved over 150 points!  

But why has Gold halted its ascent here at 1531?  One fundamental reason is that the US said today that it will delay tariffs on some items until December 15th.  However technically, we can see on a weekly chart that Gold is very close to Golden Fibonacci ratio of 161.8% of the move from the highs to the lows of the trading channel of the last 5 years. 

Source: Tradingview, FOREX.com

If we zoom in and take a look at a 240 minute chart, this makes our case more compelling:

  1. Gold has reached the 261.8% Fibonacci ratio of the move of the channel Gold was in from July 18th to August 5th.
  2. Gold was near the top of the rising trendline
  3. Gold has been diverging from the RSI since August 7th
  4. The RSI is in overbought territory
  5. At the highs, gold put in a shooting star candle, often indicative of a reversal.

Source: Tradingview, FOREX.com

As gold sold off, it did manage to hold horizontal support at 1474.2 and bounce back above 1500.  China data out later and the ongoing geopolitical events need to be carefully monitored for direction.  However, well defined support and resistance levels sit at 1474.2 and 1539.3.


Join our live webinars for the latest analysis and trading ideas. Register now

From time to time, GAIN Capital Limited’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.