Gold Constructing for a Bigger Move

Alan Penny

8 October 2019

3 min read

  • Gold finds support at 50-day EMA
  • Dueling trend lines
  • Crucial $1500 level in focus

Gold markets rose slightly during the trading session on Tuesday, as we continued to get more Brexit noise coming out of the Twitterverse, with sources claiming that Angela Merkel told Boris Johnson the European Union would not accept the deal that doesn’t keep Northern Ireland in the customs union. This essentially puts the no-deal Brexit option back on the table, and that should not come as a surprise. However, markets certainly reacted, perhaps due to algorithmic trading more than anything else.

Larger triangle

Gold chart

Over the last several months, the market has seen both an uptrend line and a downtrend line forming a massive triangle. Looking at the chart, an argument could be made for either direction to trade. Longer-term, however, it does tend to favor the upside as there are a lot of geopolitical and trade issues that continue to cause a lot of volatility. Volatility in the precious metals markets tends to favor the upside because it’s a form of uncertainty, which typically has people buying quicker than selling.

it’s not until the market breaks above the descending triangle, which is closer to the $1520 level, that buyers will have firmly taken control

The previous trend was to the upside, so it makes sense that we could get a bit of consolidation followed by continuation, as is typically the case. However, it’s not until the market breaks above the descending triangle, which is closer to the $1520 level, that buyers will have firmly taken control.

Levels to watch

There are a multitude of levels to pay attention to currently in the gold market. These include the $1500 level, which has a certain amount of psychological weight to it. Beyond that, the $1490 level is the bottom of support from this zone. Recently we broke down a bit, but we have found more support at the uptrend line closer to the $1475 level. Again, a break above the $1520 level would crack the top of this triangle, sending the market looking towards the $1540 level, followed by the $1560 level.

Trading gold going forward

Looking at the chart, it’s easy for traders to simply buy the dips, as the market has been so resilient over the longer-term. The reality is there are so many moving pieces that could throw risk appetite all over the place, and that could drive the market. The gold markets are primed to go higher based on the US/China trade disappointments, the Brexit mess, global slowdown concerns, and central banks around the world cutting rates. There are plenty of fundamental reasons to believe the gold markets will continue to be favored, with the lone exception being the fact that the US dollar has been strengthening simultaneously.

That puts the brakes slightly on a move higher, but longer-term, it’s very likely that the break out should happen sooner rather than later. Once it does, the $1600 level will be a very real possibility.

Written By
Alan Penny

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