Gold analysis (5, April 2020)
Technical Analysis
I think that this is a good time to share with my readers and copiers my view on how the gold market evolved in recent time and related assets.
Almost 4 months has past since my last Gold update, after the latest market development it's time to update our view.
If you are interested to check out my previous analysis, here it is: Gold Analysis 29.12.2019.
Gold Spot Price Analysis
The evolution of the Gold Spot prices gives a very good indication of what has happened in recent time in the market and it can also give clear indications on when one market phase is ending and a new phase is starting.
Long Term view
On Figure 1 we take a long term view point, with the weekly chart of the Gold Spot prices taken from the eToro trading platform chart-system.
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| Figure 1: Weekly Chart Gold Spot |
In a long term view we can observe that the Gold fell from the heights of the post-crisis period of 2011 (around 1900$) to a bottom around the end of 2016 which coincided with a new phase of strong "synchronized" global economic growth.
From that point the Gold began to consolidate inside the triangle limited between the Green Support line and the first resistance line drawn in Violette located around 1350$.
After almost 4 years of consolidation the Gold broke this first strong resistance when the FED for the first time in many years lowered again its short term Fund rates.
Shortly afterward it broke through the second strong resistance around 1450$, and then retested this level which then became a strong support in two separate periods of time, the latest was in the middle of March.
So far the support of 1450$ seemed to be strong and to hold during the first phase or this recession.
During this phase the market began to collapse at the fastest pace seen in modern times, with the highest volatility index on the S&P 500 ever recorded above 85.
This very fast collapse forced many traders to liquidate their assets to face margin calls, the consequence of which was that basically any asset, profitable and not was liquidated to rise cash.
During these periods everything including defensive assets such as Gold and even (theoretically) unrelated assets such a crypt-currencies undergo forced liquidation.
The gold prices collapsed but hold the support level of 1450$, if this support will hold during the next weeks, once the liquidation phase is over, money will begin to flow back into the gold and related assets (GDX, GDXJ, etc).
The next long term target could be around the values of 1750$, probably followed by a new consolidation phase and then higher, 1900$ and possibly even beyond 2000$.
Shorter Term view
In Figure 2, we can get a closer look of what happened more recently to the Gold Spot prices. |
| Figure 2: Gold Spot, daily chart |
The Figure 2 shows that after the Gold prices broke through the 1450$ resistance, have entered a situation of oversold with an RSI above 80 and basically have been consolidating for most part of the year.
As it was rising and began to test the 1700$ resistance, two phenomenon occurred almost at the same time which produced the forceful assets liquidation:
1) Covid-19 out-break that was acknowledge to have began a global pandemic, igniting panic selling.
2) The oil price war which gave the fatal blow to an already fragile market situation and was probably the main responsible for the Gold prices collapse.
This is typical because oil prices are considered a very good proxy for future inflation expectations, oil collapsing means prices collapsing and one of the most important factors that determine the Gold value on the market is inflation expectation.
The gold spot prices collapsed but the strong support level 1450$ hold again, suggesting that 1450$ might be the new temporary low above which the gold prices might consolidate before resuming the run upward toward 1700$ which might be reached by the end of the year.
The consolidation phase might end once the RSI of the Gold spot prices break though the descending resistance drawn on the lower part of the picture. In my opinion that would be a strong signal that Gold is preparing to move higher.
COT of the Gold Futures
The Figure 3, shows a graph of the COT values updated to the last Tuesday, indicate that traders reduced their positions on the Gold Futures but the number of speculative contracts in "Long position" are still at record high volumes when compared to the average so I am expecting that the consolidation will continue for some time before the prices of the Gold get a new push higher.
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| Figure 3: COT of Gold Futures |
The last very encouraging factor for the future Gold prices is that the US Dollar index has been rising quickly during the sell off, and kept rising even in the last two weeks, but Gold prices began to rise in tandem with the US Dollar rather than typically in opposite direction.
This is a sign that despite the strong assets liquidation, moneys are beginning to flow back into the gold market.
If the appreciation phase of the dollar index ends another obstacle to the gold prices to rise will be removed and it will help to propel the Gold prices higher.
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The graphs and prices shown in this analysis were taken using as a source www.etoro.com, the platform I am using for my trading as DanieleTrader.
Whoever is interested to follow my trading activity there is welcome to subscribe to the platform using the following link and follow me or Copy-Trade my activity:
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Thanks for the article, it's very interesting
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