Gold – Back in favour?

Or just a blip?

Gold has very much fallen out of favour over the last month as it fell 10% on the back of coming within a whisker of $2,000. But has something changed?

We’ve seen plenty of risk aversion in the markets over the last 24 hours, with stock markets falling heavily, and rather than being particularly supportive for the dollar, it’s gold that has performed well which hasn’t really been the case in recent weeks.

Perhaps that’s because higher inflation and therefore interest rate expectations have been behind all of the gloom in the markets, which is typically bullish for the dollar.

Whereas the last 24 hours seem to have seen a shift. Rather than interest rates, it’s economic fears that are driving the negativity in the markets. Higher inflation is squeezing margins which means higher prices. And the Fed has gone from anticipating a soft landing, to softish and now just a safe one. That shouldn’t fill anyone with confidence.

And maybe that’s why we’re seeing investors move back towards gold. Of course, we’ve seen plenty of big sentiment swings in the markets, especially this year, so that could change. But it’s possible that gold may be back in favour.

The first test of this comes around $1,850 which has been support and resistance in the past and coincides with the upper end of the 55/89-period SMA on the 4-hour chart.

This is followed by $1,875-1,900, a break of which would be a strong signal. A break back below $1,800 on the other hand would suggest quite the opposite unless accompanied by very positive economic news which seems unlikely at this point.

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