Gold 1 OZ (XAU=X) jumps as oil prices slump

Gold 1 OZ (XAU=X) jumps as oil prices slump

Gold 1 OZ (XAU=X) jumps as oil prices slump

Gold climbed as much as 1 per cent overnight after earlier hitting a more than one-week low, with the collapse of US crude oil prices to a record low hitting risk assets and driving investors to the safety of bullion.

Spot gold gained 0.5 per cent to $US1,692.26 per ounce, after earlier hitting the lowest level since April 9, at $US1,670.55. US gold futures settled up 0.7 per cent, at $US1,711.20.

Shayne Heffernan Trade Idea

“Gold is rising on bets that the unprecedented global monetary stimulus (measures) will only rise and after the historic turmoil in the oil industry reminded everyone that we are far away from seeing a return of normal global economic activity.”

“Compared to an investment in stocks, where even the biggest blue chip companies can (and have) failed, an investment in gold often seems less risky, Gold remains an asset worth owning” Shayne Heffernan PhD in Economics

Why This Matters

As the world’s earliest form of currency, gold’s physical properties have meant it has long been considered a reliable store of value. It is widely available enough to trade but is in finite supply, so is rare enough to be considered valuable and unlike some metals it is not corrosive, making it durable. 

The price of gold, which is normally in dollars, moves in the opposite direction to the greenback. This is because if the U.S. currency gains in value then it takes fewer dollars to purchase an ounce of gold. 

This was why the gold price went into meltdown last month, explained Shayne Heffernan, because the dollar rallied. As a result, the spot gold price, the cost at which the precious metal can be instantly traded, fell below $1,500 per ounce for the first time in 2020. 

As the coronavirus crisis deepened in March, Shayne Heffernan said that risk-averse investors initially flocked to cash. 

Last month’s fall in the gold price was also thought to be due to investors being forced to sell the metal and take profit from its gains, in order to cover losses elsewhere, otherwise known as a “margin call.” 

However, when the U.S. Federal Reserve cut interest rates to zero later that month, there was less incentive to hold dollars. 

Cutting interest rates meant the already low returns that investors received from investing in debt, or bonds, were nudged even lower. 

Gold has since therefore regained its popularity, with the price climbing back up to its highest point in nearly seven years last week, at $1,769 per ounce. 

A shorter supply of the precious metal has also bolstered its price, pointed out Shayne Heffernan, as the virus has forced mines to close.

Gold is also considered a good hedge against the risk of inflation because the rising cost of goods and services tends to erode the value of the dollar. 

And as central banks print more money as part of attempts to stimulate economies, Shayne Heffernan said some may fear this could result in inflation.

If this were the case this could impact the value of other assets. Meanwhile, “gold over a long period of time tends to hold its value in real terms” so can be considered as a “refuge” against this risk.

Technical Indicators

Overall, the bias in prices is: Upwards.

Note: this chart shows extraordinary price action to the upside.

By the way, prices are vulnerable to a correction towards 1,609.89.

The projected upper bound is: 1,769.31.

The projected lower bound is: 1,610.32.

The projected closing price is: 1,689.81.

Candlesticks

A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 7 white candles and 3 black candles for a net of 4 white candles. During the past 50 bars, there have been 29 white candles and 21 black candles for a net of 8 white candles.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 23.3579. This is not an overbought or oversold reading. The last signal was a sell 3 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 57.76. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 22 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 29. This is not a topping or bottoming area. The last signal was a sell 2 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 19 period(s) ago.

Rex Takasugi – TD Profile

PREC.M.XAU= closed down -5.509 at 1,687.415. Volume was 8,900% above average (trending) and Bollinger Bands were 40% wider than normal.

Open       High       Low        Close        Volume
1,692.597  1,695.500  1,684.770  1,687.415    18,026
Technical           Outlook
Short Term:         Neutral
Intermediate Term:  Bullish
Long Term:          Bullish
Moving Averages: 10-period       50-period         200-period
Close:           1,695.82        1,620.44          1,530.56
Volatility:      21              32                20
Volume:          1,803           361               90

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

PREC.M.XAU= is currently 10.2% above its 200-period moving average and is in an upward trend. Volatility is extremely low when compared to the average volatility over the last 10 periods. There is a good possibility that there will be an increase in volatility along with sharp price fluctuations in the near future. Our volume indicators reflect very strong flows of volume into XAU= (bullish). Our trend forecasting oscillators are currently bullish on XAU= and have had this outlook for the last 11 periods.

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