Gold Is Going To Trade Higher

Intermediate
  • Gold has been drifting sideways since early August
  • Market is well supported at the 50-day moving average
  • The market has a low degree of volatility
  • There will be early weakness in the Spot price, that signals a buying opportunity

Gold Spot has ventured toward the 50-day moving average (50dma) in recent days, as shown by the activity within the golden circle in Figure 1.

Gold 12 month

Figure1: Gold Dec20 (ZGZ0) 12-Month Chart  and Time Technicals                                                                                                                   Source: www.investing.com  , Spotlight Ideas

The time technicals shown in the inset chart of Figure 1 suggest that as the new week begins, Spot may well be under further selling pressure so seeing a risk of Spot breaking below the 50dma.

  • As at close on Friday, September 11, 2020:                                                                                                                                                 Spot 1948.25   50dma 1928.40    200dma 1716.56

Sideways Shuffle

The recent sideway drift of the Spot can be explained as the U.S. Dollar was moving lower. This was a puzzle as Treasury yields traded sideways despite stronger than expected retail inflation wholesale inflation.

Consumer prices rose in August, by 0.4% MoM, following a 0.6% rise in July and was ahead of  market forecasts of 0.3%. Costs for used cars and trucks increased 5.4%, the most since March 1969 and made the largest upward contribution as Americans moved away from public transportation because of fears of contracting COVID-19.

The food index rose 0.1% after falling in July as an increase in the food away from home index more than offset a slight decline in the food at home index. Excluding food and energy, prices went up 0.4%.

One can see from Figure 1 that the recent sideways price pattern has, for now, limited the upside.  This could be a falling triangle as seen in Figure 2. However, before one become too bearish note that as the start of this paper, I said Spot was approaching the 50dma…it has not broken it. Indeed the 23.6% Fibonacci support at 1935.71 offers good protection as shown by the crimson ovals.

I am quite happy to buy gold on any Monday morning wobble lower as the 50dma acts as a second support cushion.  The 50dma has functioned as a robust support and has not been breached since March when it became an inflection point for Spot.

Gold one month

Figure 2: Gold Technical Chart                                                                                                                        Source: www.investing.com  , Spotlight Ideas

I think equities will face a tricky run from now until the U.S. election is settled, so I look for gold to make a new yearly high at 2040. My stop is set at 1900 given I bought at the start of the year.

Macroeconomic Strategist

Stephen Pope is the Managing Partner of Spotlight Group. He has worked in the world of finance since 1982 and has performed d...continued

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