Categories: Market Overview

Getting ready for a decline in gold

Gold has been behaving erratically, having had a positive and negative correlation with global risk appetite in recent days. 

On Friday, the price set an all-time high above $2430, losing $100 before the end of that day, nullifying the most furious final part of the rally within four hours. The final sell-off was in unison with the markets’ fall. But on Monday, the pressure in the stock markets intensified again, and gold moved higher. 

Neither geopolitics nor fear of interest rate moves explain these shifts. Gold seems to be living its own world, in which geopolitics is used as a convenient explanation for the rise, and the rise of the dollar is used as an ex post facto explanation for the decline. 

In our view, the price run-up on Thursday and Friday morning was so significant because it occurred in thin air territory after many days of making new highs and caught a wave of stop orders above $2400. 

The impressive profit-taking at the end of the day on Friday had every chance of reversing the uptrend, which most often happens. However, the growth at the end of Monday raises doubts about such a straightforward development of events. 

On the daily timeframes, the RSI index rolled back to 73, which is on the border with the overbought area, and recorded two peaks near 85 in March and April. A further pullback to the area below 70 would be a harbinger of a broad correction. 

On the weekly timeframes, the RSI is above 79, an overbought area that gold has touched only five times since 1980, and each time, it has been followed by a correction or the start of a bear market within 1-4 weeks. The exception to this was 1979-1980, when the value of the ounce increased, and relatively short-lived consolidations followed growth impulses. 

Market tensions in recent days have also worked in favour of the bears in gold. Contrary to popular logic, gold rises against general risk demand only in the first days of the sell-off. If the pressure on equities becomes a trend, gold quickly catches up and overtakes the markets in its decline, only to be stopped by a monetary policy reversal. 

The FxPro Analyst Team

The FxPro Analyst Team

Our team consists of financial market experts. Our dedicated professionals prepare reviews on the foreign exchange market situation, Crude Oil, Gold and Stock Indices. All the analysts are regularly published in the world leading economic media.

Share
Published by
The FxPro Analyst Team
Tags: gold

Recent Posts

The dollar has reached range limits

The US dollar has strengthened, reaching the upper boundary of its trading range. The British…

30 mins ago

Crypto: Tug-of-war at new altitude

Cryptocurrencies continued to surge, pushing the total cap to $3 trillion. Bitcoin has gained nearly…

55 mins ago

USDJPY Wave Analysis 13 November 2024

- USDJPY broke key resistance level 154.70 - Likely to rise to resistance level 157.20…

20 hours ago

USDJPY Wave Analysis 13 November 2024

- USDJPY broke key resistance level 154.70 - Likely to rise to resistance level 157.20…

21 hours ago

WTI crude Wave Analysis 13 November 2024

- WTI crude oil reversed from the multi-year support level 66.70 - Likely to rise…

21 hours ago

Japanese inflation continues to rise

Japanese inflation is rising, with corporate goods prices inflation accelerating to 3.4% y/y in October,…

24 hours ago

This website uses cookies