It seems that gold is finally showing a bit of fighting spirit again this week. After the beating the precious metal has taken over the past two months, I would say that gold buyers have earned themselves a little reason to smile perhaps. That being said, they still have to address the question of whether is this the start of something bigger or just another recovery that will eventually run out of steam?
Gold prices are up over 6% so far this week, with the US midterm elections providing an added boost to the rebound. The Democrats’ sweeping victory has weighed on the dollar and now Treasury yields, giving gold some much-needed breathing room.
In the bigger picture though, things remain fairly complicated with the tech shares still looking rather indecisive and that is impacting the broader market mood too. And not to mention the questions surrounding the US-Iran war, Washington’s fiscal spending plans, and the outlook for the Fed as well.
But even if one can argue that the fundamental backdrop is looking more promising, I would argue that the technical picture still needs quite a bit of convincing.
Looking at the daily chart, gold has managed to climb back above the $4,000 mark after briefly slipping below that key psychological level at the end of last week and early this week. That is a positive first step but the recovery is now running into a more meaningful test closer to $4,200.
That is where the 100-day moving average (red line) comes into play at around $4,203, alongside the previous resistance region around $4,200-20 that has kept a lid on price action since October.
It would take a firm break above that region to give buyers more confidence in chasing an extended recovery towards $4,300 and then perhaps the 200-day moving average (blue line) at $4,468 currently. Otherwise, another rejection here could quickly put the $4,000 level back under scrutiny.
Looking to the weekly chart, at least things are seemingly more encouraging when you zoom out. Gold buyers have managed to defend the region around $3,900 to $4,000, with the 100-week moving average (red line) providing an important technical cushion – for now at least. So, that keeps the broader bullish structure from completely falling apart even after the sharp correction from the highs earlier this year.
To sum up, I would say gold bulls have definitely won themselves a bit of a reprieve this week. But if they want to turn this recovery into something more convincing, getting past $4,200 is the next order of business. Until then, this looks to be more of a promising bounce rather than any bullish breakout in the precious metal.
This article was written by Justin Low at investinglive.com.
