Gold Markets Pull Back to Find Support

Alan Penny

11 October 2019

3 min read

  • Potential trend line building
  • 50-day EMA in the neighborhood
  • Found support at previous hammer

Gold markets have been all over the place during the trading session on Friday as the United States and China continue to talk about trade. This will have a major influence as to where the market will be moving, as it gives us more of a “risk-on/risk-off” type of scenario. That being said, there are still plenty of reasons to think that perhaps gold should continue to rise.

still plenty of reasons to think that perhaps gold should continue to rise

Fundamental reasons for gold strengthening

Gold markets have multiple reasons to rise. For one, the central banks around the world are cutting interest rates and adopting more of a dovish attitude regarding monetary policy. It looks as if loosening monetary policy is simply going to continue going forward, which should drive currencies lower. That being said, the first question that a lot of people may ask is about the US dollar and whether or not it can strengthen simultaneously. Simply put: yes, it can, and it has rallied right along with gold quite often in the past.

With the concerns about the trade talks going on, and of course geopolitical concerns in the Middle East, there are ample reasons to think gold would be sought after as a safe haven. Yes, it has rallied far too much until recently, and it appears likely that a lot of this pullback has simply been a bit of profit-taking. Certainly, the sell-off hasn’t exactly been brutal.

Technical analysis

Gold chart

Gold markets have formed a potential uptrend line and found quite a bit of support in the neighborhood they are trading in right now. Ultimately, this is a market that is finding buyers based on the breakdown. That’s because, although there were many tweets and headlines suggesting the world was coming together perfectly, it’s obvious that there are still a lot of cynics out there. Beyond all of that, the 50-day EMA is slicing right through the middle of the daily candlestick, which will attract a lot of attention in and of itself.

The point of control over the last 30 days, which represents the highest amount of volume traded, is just above near the $1511 level. All things being equal, that is essentially “fair value” for the market. One of the next signals in this market will be formed after the US/China trade talks result is announced. That may actually happen after the markets close, so this may be a Monday-morning-in-Asia type of setup.

If we could get below the trend line, the $1460 level would offer support, but breaking down below there could open the door to the $1400. On the other hand, if the market was the gap above that point of control, then it would open up a move to much higher levels – perhaps even the highs that we saw recently.

Written By
Alan Penny

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