Weak US consumer confidence on Friday sent US yields sharply lower, feeding through to a bout of concerted US Dollar weakness. That was enough to lift gold sharply higher, rallying by 1.55% to $1780.00 an ounce. I must admit that the power of the gold rally caught me by surprise, but the price action itself contains warnings. Gold continues to trade inversely to the US Dollar, and readers should be under no illusion that a gold position is merely a US Dollar position right now.
Forget all the inflation hedging, haven nonsense. The fact that gold rallied nearly $40 as US yields FELL should dispel that nonsense. The speed of the rally over the past few sessions has more than a few hinting of tail-chasing FOMO investors who got stopped out, either on Aug. 6 or 9, desperately piling back in. That trading style works on equities but is usually a path to heartbreak in other asset classes. (Except perhaps cryptos, if you consider them an “asset”)
Gold’s direction will depend entirely on the US dollar direction this week, which admittedly looks weaker. That should support gold, although it has fallen slightly to $1774.50 an ounce in Asian trading, no post-Afghanistan haven buying there then, please re-read the above paragraph. Gold has initial support at $1750.00 an ounce, some distance away. However, if the US Dollar stays a week, gold should find plenty of FOMO sheep on any dip to $1760.00 an ounce. Resistance is at $1782.50 an ounce, followed by $1800.00, and then the 100-DMA at $1805.50 an ounce.