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Gold – Pivotal week as bulls fight on

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A big week for uncertain gold market

Gold is trading a little lower at the start of the week, perhaps a sign of early profit taking after the yellow metal popped higher on the back of the US first quarter GDP data.

It may have been surprising to see gold rallying in the aftermath of the data – given that the economy grew 1% more than markets were expecting – but the underlying numbers were far less impressive and pointed to weaker data in the quarters ahead.

We remain in a very uncertain period for gold though. On the one hand, the environment is primed for gold to come under more pressure – dollar is strong, US equity markets around record levels, earnings season outperforming – but when we broke through $1,280 two weeks ago, any downside momentum quickly faded. Not an encouraging sign for those that saw a break of a four month support level as a bearish signal.

Gold Daily Chart

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That said, the dollar is relatively flat today and yet gold is off around a quarter of one percent. Profit taking on the back of such a brief jump higher could be a sign of weakness. It also came around the 50% retracement from the April peak to trough, which could key a bearish technical signal for gold. In a very interesting week for the dollar and therefore gold, we may not have to wait long to find out.

A look at the 4-hour chart only adds to the confusion and suggests bears should not get too excited yet. A rotation off the 50-fib can be a nice signal but it can also bring premature optimism. That’s not to say that I don’t think gold remains bearish, just that the corrective move may not have played out.

Gold is finding support around $1,280 from above and nothing about price action suggests the recent rally has finished. Momentum remains positive – most recent peak made on higher stochastic and MACD – which suggests further gains may come. That will make the next peak – should we see it – all the more interesting. The 61.8 fib looks a very interesting level, especially if it’s achieved on lower momentum.

Gold 4-Hour Chart

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Craig Erlam

Craig Erlam

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary.

His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News.

Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
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