Gold may have traced a long-term low
Timing is everything, and going on holiday last week means that I may have missed the longer-term low for gold. It is not often that I roll out Fibonacci retracement levels. I prefer to save them for special occasions. Gold’s low at USD1760.00 an ounce last week was the exact 50% retracement of the rally from the March low to the September highs. It is not often that I come across such technical purity, and when it happens, it must be respected.
Notably, in rallying from USD1760.00 an ounce to USD1839.00 an ounce today, gold is shrugging of the steepening of the US yield curve, especially the approach of the 10-year yield to one per cent. Gold has been typically, extremely sensitive to moves higher in the 10-year yield, and rallying in the face of it climbing is a bullish signal. It may well be that a lot of the stale longer-term positioning has now been culled, leaving the market more balanced.
Gold’s fundamentals remain strong into 2021, even if they are heart-breaking for gold bugs in the shorter-term at times. The US dollar is set for an extended period of depreciation. The Federal Reserve will almost certainly act to cap longer-term US yields and accidentally buy quite a bit of the impending US fiscal stimulus bond issuance. Just don’t call it debt monetisation. That should prove to be a fruitful environment for gold prices.
Gold has resistance at USD1850.00 an ounce, with a close above that pivot area setting the scene for a test of the resistance line at USD1920.00 an ounce. A weekly close above USD1920.00 an ounce opens a return to the USD2075.00 an ounce September high in the coming weeks. In the near-term, gold has resistance at USD1880.00 an ounce, the 50-day moving average. Gold has interim support at USD1805.00 an ounce, the 200-day moving average. Only a weekly close below USD1760.00 an ounce invalidates the bullish outlook, implying deeper losses below USD1700.00 an ounce.