Spot Gold Spikes to $4858 Then Fades as Yields and Dollar Bounce Back
Spot Gold spiked to $4858.22 early Wednesday before settling at $4718.96 as the session played out in two completely different directions.
Ceasefire Sparks the Rally
The ceasefire headline between the U.S. and Iran was the trigger. Oil dropped, inflation expectations eased and the 10-Year U.S. Treasury yield fell with them. The U.S. Dollar Index weakened at the same time. That’s the setup gold needs and it moved fast on all of it.
Yields and Dollar Bounce, Gold Gives Back the Gains
The problem came later in the session. The 10-Year U.S. Treasury yield bounced off the lows and the U.S. Dollar Index followed. When those two reverse, gold loses its tailwind and that’s exactly what happened. Profit-taking hit and Spot Gold pulled back hard from the highs.
The fact that it still closed higher tells you the underlying bid is real. Sellers had their chance and couldn’t push it back to unchanged.
Safe-Haven Demand Kept a Floor Under the Market
The ceasefire is two weeks. It isn’t a peace deal and the market knows that. That lingering uncertainty kept safe-haven buyers in the market during the pullback and limited the damage on the way down.
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Technically, Spot Gold’s main trend is down according to the daily swing chart and the 50-day moving average at $4914.58, but momentum has shifted to the upside.
A breakdown under the 50-day moving average on March 18 triggered a steep break until March 23, when buyers stepped in on a successful test of the 200-day moving average at $4099.12. Today, the indicator is at $4166.90.
The market is currently sitting in a long-term retracement zone at $4744.34 to $4541.88. I’m convinced that trader reaction to this zone will determine the near-term direction of the market.
The short-term range is $5419.66 to $4099.12. It’s retracement zone at $4850.68 to $5028.04 is the primary upside target. On Wednesday, XAUUSD tested the lower or 50% level at $4850.68 before topping out at $4858.22 and retreating into the close.
Recovering the 50% level at $4744.34 will put it in a position to challenge $4850.68 again, along with the 50-day moving average at $4914.67 and the 61.8% level at $5028.04. Overtaking this resistance setup will put spot gold in a position to surge into main tops at $5419.66 and $5602.23.
If the buying isn’t strong enough to overcome $4744.34, then this could trigger a steep break into another support zone at $4478.67 to $4389.10. Buyers will try to form a secondary higher bottom on this move, but if they fail, prices could fall into the 200-day MA at $4166.92.
Short-Term Outlook
The next move in Spot Gold depends on what the 10-Year U.S. Treasury yield and the U.S. Dollar Index do from here. If they keep climbing, gold is going to struggle to hold these levels. If they roll back over, gold has another run in it. The macro picture is still driving this market and that isn’t changing until the ceasefire situation resolves one way or the other.
The key level to watch on Thursday is $4744.34. Trader reaction to this price will set the tone.
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