Gold paused yesterday and doesn‘t look ready to rebound. But does it mean it‘s acting consistently weak?
No. Today‘s analysis will show that its better days will come – and we won‘t have to wait for all that long.
Let‘s dive into the charts (all courtesy of www.stockcharts.com).
Gold In Spotlight
Today‘s premarket price action isn‘t a nice sight to the precious metals bulls, as gold is largely mirroring silver‘s losses. But how far can this short squeeze reversal trade run? Can it usher a new downtrend?
I don‘t think so. The protracted gold basing pattern I described last Monday, is holding up. What we're seeing is a knee-jerk reaction to a 33,000 drop in new unemployment claims (supportive for risk on assets). Does it mean that we're on the doorstep of a strong job market recovery? Given the last six months of payroll developments, it would take us five years to get back to pre-corona levels.
This gold chart will get a fresh facelift and a new red candle today. I look for the volume at the close, and the size of the lower knot first before drawing conclusions. Now that prices sunk below $1,800, the lower Bollinger Band is getting pushed. Is a new trend starting here? That‘s the key question. I still say no, as this isolated kind of a strong move meets corrective forces next.
The U.S. dollar and gold chart shows that the strongly negative correlation is slowly giving way to more independent trading between the two assets. Now that the dollar is in a short-term run higher, it‘ll exert less pressure on precious metals.
Is gold‘s slide today announcing much higher dollar values ahead?
The dollar is less than half a percent higher, while gold plunged by more than 2.5%, which doesn‘t look like a move that can last, based on the fiat currency versus the metal of kings intermediate-term dynamic.
Rising yields accelerating their decline in 2021 are another factor of gold‘s short-term headwinds. While I don‘t see yields as falling from a medium- or long-term perspective any time soon, they are set to stop dragging gold to the downside. And the December 2020 and also the 2021 performance show that gold buyers are happy to step in and buy the plunge.
The gold to corporate bonds (GOLD:DJCB) ratio reveals the yellow metal is keeping the ground gained. The rising Treasury yields are a manifestation of a large spending bill coming, and deteriorating public finances, which will catch up with the greenback.
Summary
Gold is under short-term pressure, and the coming sessions would show just how much the market thinks the current fall has been overdone. The basing pattern remains unbroken, with technicals and fundamentals in place for the upcoming bull run. Patience is still the name of the game in precious metals.