By
The first big technical level which acted upon the gold price this year came at the July high $1380. This “magical” level corresponded to the Fibonacci 38.8% retracement of the whole gold bear market from 2011, as seen in the chart below.
This week’s sharp move lower in gold, as mentioned, did not come on unexpected news, but rather a technical break of the $1300 support level. Stop-losses and algo trading programmes took over the gold market on Tuesday, fueling the downward snowball effect. Thursday’s additional drop in the gold price stopped at (and is holding today) above $1249, the Fib 38.2% of the 2016 rally. $1249 also corresponds to the low on gold the week of Brexit. More importantly, gold is arriving at this technical support level in very oversold conditions. Each time the RSI 9-day has fallen below 20 in the past two years (see chart below), the gold price has offered a tradable rally. Barring a blow-out jobs number for September, which would increase speculation of a December Fed rate hike, we expect the $1249 level to support the gold price here. A tradable rally could extend back up to $1300, the former support level broken this week, at which level we would take profits, unless fresh fundamental news comes out in favour of gold.
Stepping back and looking past technical movements, gold remains in a new bull market. The major downtrend from 2011 was clearly broken this year and the gold price remains in a pattern of higher highs and higher lows since late 2015. Only a close below $1200 would invalidate the 2016 uptrend in gold. Finally, the fundamental reasons to hold gold today remain compelling, as explained in our article, “Gold’s Moment To Shine”.
This week’s sharp move lower in gold, as mentioned, did not come on unexpected news, but rather a technical break of the $1300 support level. Stop-losses and algo trading programmes took over the gold market on Tuesday, fueling the downward snowball effect. Thursday’s additional drop in the gold price stopped at (and is holding today) above $1249, the Fib 38.2% of the 2016 rally. $1249 also corresponds to the low on gold the week of Brexit. More importantly, gold is arriving at this technical support level in very oversold conditions. Each time the RSI 9-day has fallen below 20 in the past two years (see chart below), the gold price has offered a tradable rally. Barring a blow-out jobs number for September, which would increase speculation of a December Fed rate hike, we expect the $1249 level to support the gold price here. A tradable rally could extend back up to $1300, the former support level broken this week, at which level we would take profits, unless fresh fundamental news comes out in favour of gold.
Stepping back and looking past technical movements, gold remains in a new bull market. The major downtrend from 2011 was clearly broken this year and the gold price remains in a pattern of higher highs and higher lows since late 2015. Only a close below $1200 would invalidate the 2016 uptrend in gold. Finally, the fundamental reasons to hold gold today remain compelling, as explained in our article, “Gold’s Moment To Shine”.
