- Gold markets rallied rather significantly during the ECB announcement
- $1500 offer support
- Technical analysis all points to the upside
Gold markets exploded to the upside during the trading session on Thursday as the ECB announced that they were cutting interest rates to -0.5%, and continuing to expand quantitative easing, in a program that is buying unlimited bonds for as long as it takes to turn things around. In other words, the ECB has completely capitulated to the lack of growth, and now it makes sense that quite a bit of bullish pressure in the precious metals should continue to be seen.
Technical and fundamental analysis
The technical analysis for this market is very strong all the way around. At this point, the $1500 level looks massively supportive, as it is a large, round, psychologically significant figure, and will attract a lot of attention. Beyond that, the 50 day EMA is just underneath, and that of course offers a significant amount of support as well. We had previously been in a consolidation area between the $1500 level and the $1600 level. Overall, this is a market that has seen a lot of action in this area, and now that fundamentals are starting to pick up for the gold market as well, it’s likely that we will continue to see buyers on dips.
Beyond that, the uptrend line hasn’t even been tested yet so if we do fall from here it’s very likely that we could go higher. Longer-term, the market breaking above the $1600 level could send this market towards the $2000 level. Gold has just been confirmed in the uptrend by the ECB, and now that the ECB has gone all in when it comes to quantitative easing, it is almost forcing the Federal Reserve to do something drastic as well. In other words, we are still very much in that scenario where the central banks will do everything they can to re-inflate the economy, driving down the value of fiat currencies in general.
The trade going forward
The trade going forward of course is to buy gold on dips and therefore it’s likely that we should continue to go much higher. All things being equal, the 50 day EMA should be massive support but quite frankly it would be very difficult to get down through that level as the explosive nature of the trading session on Thursday certainly has helped solidify what the markets have already shown. To the upside, there will be various resistance barriers in the form of the $1600 level, $1700 level, and so on all the way up to the $2000 level. This doesn’t mean that we won’t get a significant pullback occasionally, but overall selling gold is all but impossible at this point. We are in a longer-term cyclical bull market.
- Gold markets break down through $1500 level
- Still in an uptrend
- Looking for value
Gold markets broke down during the trading session on Tuesday, slicing through the $1500 level. This is a very psychologically important figure, but at the end of the day, it’s not the be-all-and-end-all of support. The fact that we have sliced through that area will attract a lot of headlines in news outlets, which could cause concern among retail traders.
Futures markets volatile
The gold December 2019 contract has been relatively negative over the last couple of days, but the fact that we have stalled a bit just below the $1500 level suggests we are in fact still in an uptrend, although we have seen quite a bit of downward pressure. Ultimately, this market is still much higher than it was six months ago, and it should be recognized that gold tends to be more of a safety trade, so therefore traders will hang onto their positions much longer.
The technical analysis for this market is still very strong, although we have broken through the big figure. The 50-day EMA, painted in red on the chart just below at the $1475-ish level, should offer some support. That is the beginning of massive support, which extends down to the top of the previous ascending triangle that kicked off the latest leg higher. It would not be surprising at all to see this market end up down there, because that is a resistance barrier that has not been retested. Regardless, there’s a theme here: there are plenty of buyers underneath, and obviously, there will be plenty of traders looking to pick up a bit of value.
The ascending triangle underneath shows signs of potential support as well, so ultimately this is a market that is simply looking for buyers. Beyond that, you can see that the 90-day volume on the right-hand side of the chart was very thin on the way out, and we are starting to see a break down through thinner volume. The thinner volume will be tested, at which point it’s likely that the market will try to consolidate at one of the support levels underneath, build up volume in that area, and then continue the uptrend.
Keep in mind that the safety trade is very much in effect. As we get negative news coming out of the US/China situation, Brexit, global growth, and possibly the ECB meeting later this week, we could get traders coming back into this marketplace. Looking for volume to pick up underneath and a bounce will be crucial for the longer-term directionality of this market. As far as selling gold is concerned, it’s very difficult to do so due to the fact that the global marketplace is essentially on pins and needles. At any moment, we could see a complete turnaround and the market racing to the upside.