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David Becker

Gold prices eased on Tuesday coming off 7-year highs, despite a huge selloff in riskier assets. Gold implied volatility, represented by the GVZ index calculated by the Chicago Board of Options Exchange, surged another 5% on Tuesday after climbing 9% Monday. This is the highest close on the gold implied volatility index is more than 12-months at 18.50%. The highest close of the GVZ implied volatility index over the past 10-years is 37%. This tells market participants that fear is increasing and the demand for gold options continues to rise. Fears of the spread of the coronavirus throughout Asia and now Europe and the US have to lead to a sharp selloff in riskier assets that have led investors into bonds which have surged. The drop in the 10-year yield to fresh 100-year lows is negatively correlated to gold prices and likely to drive them higher.

 

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Technical Analysis

Gold prices eased but closed off the lows of the session. Target resistance on gold prices is seen near the 2012 highs at 1,792. Support is seen near the 10-day moving average at 1,608. Short term momentum has turned as the fast stochastic generated a crossover sell signal. This occurred in overbought territory which reflects accelerating negative momentum. The current reading on the fast stochastic is 80.5, above the overbought trigger level of 80 which could foreshadow a correction. The RSI (relative strength index) also eased slightly, but still remains above the overbought trigger level printing a reading of 73, above the overbought trigger level of 70 which could foreshadow a correction. The MACD histogram is printing in the black with a declining trajectory which points to lower prices.

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