Gold had a good night last night, especially if you were a bullish trader. US yields plunged and many people took up short positions. In return, markets are looking very closely at precious metals and safe havens.
Gold has always been seen as a safe haven and for the most part, a lot of large investment firms have been predicting a downfall for the precious metal – the tag line “goodbye to 1300” seems to be the current mantra which we have seen so far in the media.
But things aren’t always as they seem in markets and there may still be a reason for a Gold resurgence. With yields falling very quickly, this in turn could mean there is still a substantial amount of fear in global markets, or investors are starting to get a lot more anxious with the run up to tapering ending.
Source: Bloomberg (10 year US Gov Bond yield)
Either way, it bodes well for safe havens like Gold or certain currencies.
Certainly, the jump for Gold through the bearish trend line caught me by surprise, and I have a suspicion that it caught a few out in the markets. It’s interesting to note that on the daily chart, it failed to break completely through the 50.0 fib level – only just managing to test it before pulling back.
Is Gold bullish after a breakout? No, not yet, it’s a little too early to start making calls like that, but there are certainly signs pointing to a more bullish market. From a purely fundamental point, there is certainly some fear in the markets as we have seen in the heavy drop of Treasury yields.
Secondly, trading commitments are always a good way to see what the market is thinking. Current money managed positions - taken from the 6th of May CFTC survey - currently stand at 119k long, compared to just 28k short, a major imbalance when you think about it. So certainly there is a lot of interest in Gold and being bullish about it when it comes to managed money.
The third part is more technical based and the daily chart below certainly points to some interesting features.
Source: Blackwell Trader (XAU/USD, D1)
The current stoch shows that momentum has certainly shifted and its getting more bullish, while the RSI is starting to show a slight uptrend for the buying side. Certainly, the higher lows for each wave is also giving room to pause and think of potential to go higher.
To catch a bull, you generally have to grab it by the horns, but in this case I think it's safer to wait and see, and look for some further conformation candles. A break through the 50.0 fib level would be bullish though, and I would certainly look for it to range higher to 1327.00 in the short term. Any longer than that, I would need to see a complete breakout from the 61.8 fib level, otherwise in the current market climate, it could be just ranging instead of a confirmed bullish trend.
Overall, the current Gold market should be closely watched in its present state. Certain signs are starting to turn bullish, but we have not seen any confirming candles just yet. Any push over the 50.0 fib mark should be watched closely and certainly, there is a chance to take short term profits and watch out for a long term trend changer.