Gold News: Gold Rally Builds After 200-Day Test—Are Buyers Targeting $4850.68?

Gold Bounces Back as Bargain Hunters Step In at the 200-Day MA

Spot Gold (XAUUSD) is up nearly 3% late in the session on Friday, with bargain hunters stepping in after this week’s sharp sell-off pushed prices below the 200-day moving average. In my opinion, that technical break triggered a wave of value buying by investors just interested in the relative price, rather than any major fundamental event. Spot gold also hit a four-month low at $4099.12 on Monday, I guess close enough to the psychological $4000.00 level to be attractive.

The Noise on X Was a Distraction From What Really Mattered

The positive thing about the plunge is that the market was able to consolidate enough to attract new buyers to push prices higher for the week. One negative about the market this week was the amount of noise coming from X.com (formerly known as Twitter). Rather than focus on the price action, those participants chose to concentrate on gold’s correlation with wars, and safe-haven buying. Most failed to see its relationship to actual central bank selling, rising Treasury yields and the strengthening odds of a Fed rate hike by December. If you’re going to trade gold for a living then you have to be flexible enough to know it can wear two hats at times. Sometimes it’s a hedge or safe-haven, and sometimes it’s an investment.

Gold Can Be a Safe-Haven and an Investment at the Same Time

Now I realize that some gold players treat gold as a safe-haven, but I prefer to call it risk uncertainty buying. We’ll never know the true reason for the sell-off, but we can look at a few theories. To the short-term technical trader, it may have been the decisive break under the 50-day moving average. Perhaps a combination of sell stops and momentum traders triggered the steep decline. To the fundamental trader, perhaps some should have realized that as a safe-haven, the benefit comes from using your profits not just sitting on the gold bars. France decided to repatriate its gold in the U.S. Turkey decided to sell gold to protect its currency from a possible rush of refugees crossing its borders from Iraq. China and Russia tightening sales of gold, may have also contributed to the volatility.

Keep It Simple and Know Your Levels

In hindsight, it’s easy to say the breakdown under the 50-day MA, currently at $4962.54 on March 18 may have been the catalyst to launch the great four-day sell-off to $4099.12. And if a breakdown under a short-term MA could exert that much power, then a technical bounce from a successful test of the 200-day MA average at $4113.25 today, could do the same with increased upside momentum. What I’m really saying is to keep it simple. Know your trend indicators and know your support and resistance levels. Most of all, know your exit before you get in.

Short-Term Bottoming Action and a Game Plan for Early Next Week

Ahead of the weekend, I think we are looking at short-term bottoming action. After the prolonged move down in terms of price and time, we had a plunge to $4099.12. Typically, with this move, the first leg up is driven by short-covering and profit-taking. That was $4099.12 to $4602.65. The next move is usually a 50% to 61.8% pullback of the first rally. That made $4350.88 to $4291.47 our next downside objective. Yesterday’s break to $4351.35 came close to hitting the objective, but buyers came in early and the subsequent rally took us to $4555.63 on Friday.

Looking forward to Monday’s trade, look for strength to develop if $4350.88 to $4291.47 holds as support and for gold to accelerate into $4850.68 to $5028.04 if the minor top at $4602.65 is taken out with conviction. That’s my early game plan for next week.

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