Gold Is Bouncing, but the Big Problem Has Not Gone Away
Gold is bouncing Friday after buyers showed up at Wednesday’s low. The move got help from oil, the dollar and Treasury yields. All three had been leaning on gold. On Friday all three backed off enough to let the market trade higher.
Trump said the United States would not attack Iran before the midterm elections. That knocked some of the war premium out of crude oil. Lower oil took some of the heat out of the inflation trade. Traders stopped pressing the dollar higher and took a little money off the table in yields. Gold finally caught a bid.
It’s a good bounce. What drove prices down earlier in the week is still here. Oil is still expensive, long-term yields are still high and the Fed is still talking about another rate hike. Gold is reacting to less pressure. The rates backdrop hasn’t gotten any friendlier.
At 12:35 GMT, Spot Gold was trading at $4184.86, up $51.17, or 1.24%.
Yields Are Still the Bigger Issue
The 10-year Treasury yield came off its high. It’s still near the highest level since 2002. The 30-year isn’t far behind. Those are the same long-term yields that pushed gold into Wednesday’s low. That is a lot of competition for gold.
FedWatch shows an 84.7% chance of at least one rate increase by the December meeting. Gold bulls aren’t going to fight that kind of pricing on the strength of one oil headline. I’d expect buyers to take profits on the way up into resistance instead of adding to longs. December is the meeting this market is trading against.
Gold’s getting its lift from oil and the dollar this morning. Both of those can turn on one headline. It does not have much room for yields to start climbing again. The 10-year hasn’t come off this week’s high by much. That’s too close for gold buyers to relax. Keep the 10-year chart open next to gold today.
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See all Gold forecastsCrude Took the Pressure Off Gold
Gold spent most of the week fighting the oil rally and losing. Every time crude climbed, yields climbed with it and the dollar went along for the ride. Gold got caught in the middle.
Friday changed the tone, at least for now. Brent and West Texas Intermediate crude oil are lower after Trump’s comments. Traders had been paying up for the chance of a bigger supply disruption. They are taking some of that premium out.
But the oil market is still the risk. The fighting has not gone away. Trump only took a U.S. strike off the table before the election. One bad headline can put the supply story back in control. A gold rally built on one oil headline doesn’t have much underneath it.
The Dollar Is Softer, but It Is Still Strong
The U.S. Dollar Index has pulled back from this week’s high. That pullback is helping gold today. The dollar had been one of the cleanest reasons to sell the metal. It was moving higher while gold was breaking support. Traders didn’t need much more of a story than that.
Still, the dollar is not weak. It is trading well above its 50-day and 200-day moving averages. This is a pullback after a strong move. Gold needs more than one quiet day in the dollar to build a lasting rally.
Daily Spot Gold (XAUUSD) Technical Analysis
Spot Gold is sharply higher early Friday as traders continue to build on the rally from the low reached on Wednesday at $4066.54.
The main trend is down according to the daily swing chart; however, the minor trend is up. This could drive up near-term volatility. The main trend changes to up on a trade through $4399.67. A move through $4066.54 will signal a resumption of the downtrend.
The minor trend turned up earlier today when $4184.38 was taken out. If this move generates enough upside momentum, it could lead to a test of a key retracement-level resistance cluster at $4230.51 to $4233.10. If the buying is strong enough to take out this area, the 61.8% level at $4272.41 will come into play. This is a potential trigger point for an acceleration into the 50% level at $4319.60, followed by the 50-day moving average at $4334.94.
What to Watch
There is no major U.S. economic report Friday to take over the trade. Gold is going to follow the headlines out of the Middle East, crude oil, the dollar and Treasury yields.
The deal talk is winning this morning. Crude is lower and gold buyers have the edge going into the New York open.
Buyers took out the minor top at $4184.38 early Friday and the next stop is the retracement cluster at $4230.51 to $4233.10. That cluster is where the bounce runs into its first real selling.
My bias is still to the downside, but my outlook was weakened by the change in the minor trend. There is room to the upside to extend the rally, but the move could be labored due to overhead resistance. Each level could lead to refreshed selling pressure. Until we see a sustained move over the 50-day moving average at $4334.94, sellers are still going to be in control.
Sellers still have the bigger trend until $4399.67 is taken out. Wednesday’s low at $4066.54 is the floor under the whole bounce.
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