In the history of major key reversals in markets, surely the move in gold we’ve just witnessed is right up there. It was brutal, turning what was initially interpreted as a significant bullish move to record highs into a moment that may have done lasting damage for the bullion price.
By :David Scutt, Market Analyst
- Gold suffered one of the ugliest daily reversals you’ll see on Monday
- Despite the bearish move, it has found buying at uptrend support and has since stabilised
- Gold seems particularly sensitive to moves in the US dollar right now
In the history of major key reversals in markets, surely the move in gold we’ve just witnessed is right up there. It was brutal, turning what was initially interpreted as a significant bullish move to record highs into a moment that may have done lasting damage for the bullion price. A lot will come down to the near-term price action, something that may exacerbate or limit the scarring from what occurred.
A key reversal for the ages
Just look at the size of the move on the daily chart. There are bearish candles and then there was yesterday, seeing gold reverse at speed through the zone of prior record highs like a hot knife through butter. Extraordinary. The inability to find buying support at this major level only underscores just how bearish the move was, with the initial upside surge likely reflecting stop-loss buying triggered during low volume early Asian trade. It comes across as blow-off top that may prove hard to shake for bulls unless the price action can become more constructive, and quickly.
While it doesn’t come across as a meaningful level on the charts at first glance, gold found buying on a dip below uptrend support at the peak of downswing, managing to reclaim the level into the close. In early trade on Tuesday, an attempt to extend the bounce has faltered, suggesting the price action around this level could be important for the longer-term trajectory.
A downside break would bring a test of former horizontal support at $2005 into play. $1985 is the next downside target with a far more significant test found around $1945-50, a zone including horizontal support and the 50 and 200-day moving averages. Should uptrend support hold, you’d imagine any upward momentum would be limited in light of Monday’s abrupt reversal.
US real yields trending lower despite modest bounce
Despite the reversal in the US dollar and US bond yields on Monday, benchmark real US bond yields have only ticked up modestly, sitting less than 5 basis points above where they started the week. More importantly, there’s no sign of a meaningful reversal in inflation-adjusted yields yet, providing a more palatable macro backdrop than what the price action would imply. It spears the USD is far greater influence right now, making gyrations in short-dated US yields – which reflect the Fed funds rate outlook – potentially significant for bullion near-term. On that front, looking at the US data calendar, US services PMI and US jobs data later in the week loom large in the absence of Fed speakers.
– Written by David Scutt
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