Note: so far stocks have been quick to regain their positions on easing of geopolitical concerns, while Gold has held its major and Key support overall.
Precious metals and stock indices are 2 different bits of business, with the metals being supported additionally by a weaker USD YTD. But, when you take USD out of the mix, the behavior of the stock markets and Gold does appear a bit off, Yes?.
With US indices regularly marking fresh new highs, we would expect Gold to be hanging near multi-year lows. But, it is not the case with the USD denominated precious Yellow metal repeatedly hitting new highs for the year, while Gold in EUR terms at €1120 remains supported above the Y 2016 low at around €988.
That begs the question, are the Gold market participants being unreasonably negative, or are stock market participants being unreasonably optimistic?
When we think about Gold’s traditional role as a safe-haven, it makes sense for it to go up and stay up while geopolitical tensions are high.
And that many savvy money managers are allocating some portion of their funds (say 10 -15%) in buying protection for their long stock holdings in case of a market correction (8 -12%)
The protection can be a combination of options or safe-haven plays like Gold and Silver for professional and retail investors alike.
Buying the dip has been a very successful trading strategy over the past several years in the stock market, and many people prefer that strategy over selling the dives.
Overall, it appears that investors still feel that the overall risk of geopolitical tensions are not big enough to outweigh the benefits of the variables that keep stocks underpinned, even at these record marks.
This then explains why both stocks and Gold remain supported rather than go in their different directions despite raised geopolitical tensions.
So, here is the hook, unless the unthinkable happens and NKorea and the US start an War, do not be surprised if stocks bounce back each time they fall, and Gold keep going up in return.
Notice in the chart above that Gold continues to break Key resistance marks. After taking out and holding above the psych mark at 1300, has now marked 1337/8, the November 2016 high.
At almost 1340, the precious metal achieved its best mark overnight since September 2016, before pulling back a little.
Our next Bullish objectives is at 1350-2, the 161.8% Fibonacci extension mark, and then at 1375, the Y 2016 high.
But how and how long it will take, I am not sure.
Will it back and fill, then continue higher, or was this weekend void a power gap, in which case it will continue pushing higher without a pullback?
Note, that because of its sharp gains, Gold is looking a bit overbought (not much) short-term with the momentum indicator RSI moving North of 70 again.
Meaning, that there may be a possibility for a short-term pullback because of profit-taking.
The 1st support would be the gap fill base and old resistance around 1325, followed by a move back to 1300 resistance turned support.
But, if Gold eventually break below the 1275 swing low point then this would end the Bullish bias.
Unless that occurs, I am expecting higher prices in ahead, especially given the break of the long-term Bear trend which can see on the chart above (note the Red line).
Have a terrific week.
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