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James Hyerczyk
Gold Futures

Gold futures are trading higher shortly after the regular session opening on Monday as traders responded to a bearish outlook for U.S. interest rates, and a weaker U.S. Dollar.

Although some traders want to build a case for gold being supported by rising geopolitical conditions, the primary driver of the rally remains gold’s negative correlation to real interest rates and the dollar. Essentially, the closer real interest rates in the U.S. get closer to zero or negative, the more attractive non-interest bearing gold becomes.

Or as Johan Jooste of The Global CIO Office told CNBC’s “Street Signs Asia” on Monday that the “opportunity cost of holding gold is virtually zero” with Treasury yields at their current low levels.

At 15:33 GMT, December Comex gold is trading $1958.80, up $33.60 or +1.75%.

Daily December Comex Gold

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through the intraday high at $1971.30 will signal a resumption of the uptrend. The main trend will change to down on a move through the last swing bottom at $1819.30. This is highly unlikely, however, the prolonged move up in terms of price and time has put the market inside the window of time for a closing price reversal top.

A closing price reversal top is not a change in trend, but a sign that the selling is greater than the buying at current price levels. If confirmed, it could lead to the start of a 2 to 3 day correction or a 50% to 61.8% correction of the last rally. This would make $1895.30 to $1877.40 the next major downside target.

Swing chart analysis also shows that the last three main trend pullbacks have been about $38.00. If $1971.30 holds as the high then $1933.30 could become the minimum downside target.

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Daily Swing Chart Technical Analysis

Based on the early price action, the direction of the December Comex gold market the rest of the session on Monday is likely to be determined by trader reaction to Friday’s close at $1925.20.

Bullish Scenario

A sustained move over $1925.20 will indicate that buyers are still coming in to support the rally. This could trigger another acceleration to the upside on a rally through $1971.30.

Bearish Scenario

A close under $1925.20 will form a potentially bearish closing price reversal top. If confirmed, this could trigger a break into $1333.30, followed by $1895.30 to $1877.40. Since the main trend is up, buyers are likely to come in on a test of this area.

For a look at all of today’s economic events, check out our economic calendar.
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