Objective Gold Futures Analysis
The price of an ounce of gold in
GC1!
has declined from a 52 week high of $1704.3 to $1450.9 (a $253.4 decline or -15%).
Looking at the volume profile on the left the low 1450.9 is a rejected price; low volume trades at that horizontal price level so is subject to sudden bounces when touched.
Again looking at the volume profile the pivot high 1554.3 is a rejected price; low volume trades at that horizontal price level so is subject to sudden corrections when touched.
Between these two levels on the volume profile around the semi-round number 1485.0 is the accepted price; high volume trades at that horizontal price level so is subject to volatile choppy trading.
Bringing our attention to the price-time chart the question on everyone's mind is "Will 1450.9 hold or do we have further to fall?" In trading terms: "Do I buy here or do I wait for lower prices."
Lets analyse the 1450.9 level low with technical analysis.
The price has bounced twice from this level in two "rally-pullback-rally" trends followed with above average volume (looking at the vertical volume bars). The high price achieved from these two bounces has been 1554.3. This is our rejected price level mentioned above; the resistance. We have had a little bit of consolidation between the high of the second bounce around the accepted price level 1485.0 and this third bounce which began at 22:00 GMT on 19 March 2020. Important to note here that the volume accompanying this third bounce is below average. The trend that supported the second bounce has currently acted as additional resistance on price action on two occasions. Price is now testing the underside of this trend for the third occasion.
Hypothesis
There are a number of factors weighing on the price of gold. Immediately obvious is the US Dollar as it is what gold is priced in. Demand for the US Dollar has increased in the last two weeks this can be seen via
DXY
. My hypothesis centres around both US Dollar demand and the yield of long dated US Treasury Bonds
ZB1!
.
The Federal Reserve has lowered interest rates to 0-25 bps. My assumption is that we have hit the floor for interest rates; the only way is up from here.
If interest rates can only be hiked from this level this will have the opposite desirable effect the Federal Reserve are trying to create. QE (quantitative easing) is used to buy Treasuries from bond dealing banks. By doing this the Federal Reserve hopes to hold the bid up on Treasuries which in turn holds the yield down and also adds liquidity to banks (because they have sold the treasuries for QE cash). But if the only way is up for interest rates the market will naturally begin to price in higher yields in treasuries. In trading terms treasuries will fall even though the fed is trying to hold up the bid because yields can only go up from here.
The COVID-19 pandemic has created a panic in the West. Not least because stock markets have declined >30% but also for regular people with jobs who may not be able to work if countries go into quarantine. This is where the US Dollar demand has stemmed from. If an individual is quarantined then they cannot work so they will have no income which means immediately cash needs to be hoarded to survive such a period in the future. In trading terms the cash cannot be spent now or for the foreseeable future hence there is no cash for investment.
Increased US Dollar demand + Rising Treasury Yields = Less Gold Demand (investors jump to the US Dollar for yield versus gold which offers no yield).
As an added note being long gold is a hedge against inflation (the investor believes inflation is going to rise). I question the hyperinflation theory of gold in a market that has currently seen commodities decline such as a barrel of Light Crude which has halved in price.
Price Targets
Short-term (1 week) 1554.3
Long-term (1 month) 1175.0
The price of an ounce of gold in
GC1!
has declined from a 52 week high of $1704.3 to $1450.9 (a $253.4 decline or -15%). Looking at the volume profile on the left the low 1450.9 is a rejected price; low volume trades at that horizontal price level so is subject to sudden bounces when touched.
Again looking at the volume profile the pivot high 1554.3 is a rejected price; low volume trades at that horizontal price level so is subject to sudden corrections when touched.
Between these two levels on the volume profile around the semi-round number 1485.0 is the accepted price; high volume trades at that horizontal price level so is subject to volatile choppy trading.
Bringing our attention to the price-time chart the question on everyone's mind is "Will 1450.9 hold or do we have further to fall?" In trading terms: "Do I buy here or do I wait for lower prices."
Lets analyse the 1450.9 level low with technical analysis.
The price has bounced twice from this level in two "rally-pullback-rally" trends followed with above average volume (looking at the vertical volume bars). The high price achieved from these two bounces has been 1554.3. This is our rejected price level mentioned above; the resistance. We have had a little bit of consolidation between the high of the second bounce around the accepted price level 1485.0 and this third bounce which began at 22:00 GMT on 19 March 2020. Important to note here that the volume accompanying this third bounce is below average. The trend that supported the second bounce has currently acted as additional resistance on price action on two occasions. Price is now testing the underside of this trend for the third occasion.
Hypothesis
There are a number of factors weighing on the price of gold. Immediately obvious is the US Dollar as it is what gold is priced in. Demand for the US Dollar has increased in the last two weeks this can be seen via
DXY
. My hypothesis centres around both US Dollar demand and the yield of long dated US Treasury Bonds
ZB1!
. The Federal Reserve has lowered interest rates to 0-25 bps. My assumption is that we have hit the floor for interest rates; the only way is up from here.
If interest rates can only be hiked from this level this will have the opposite desirable effect the Federal Reserve are trying to create. QE (quantitative easing) is used to buy Treasuries from bond dealing banks. By doing this the Federal Reserve hopes to hold the bid up on Treasuries which in turn holds the yield down and also adds liquidity to banks (because they have sold the treasuries for QE cash). But if the only way is up for interest rates the market will naturally begin to price in higher yields in treasuries. In trading terms treasuries will fall even though the fed is trying to hold up the bid because yields can only go up from here.
The COVID-19 pandemic has created a panic in the West. Not least because stock markets have declined >30% but also for regular people with jobs who may not be able to work if countries go into quarantine. This is where the US Dollar demand has stemmed from. If an individual is quarantined then they cannot work so they will have no income which means immediately cash needs to be hoarded to survive such a period in the future. In trading terms the cash cannot be spent now or for the foreseeable future hence there is no cash for investment.
Increased US Dollar demand + Rising Treasury Yields = Less Gold Demand (investors jump to the US Dollar for yield versus gold which offers no yield).
As an added note being long gold is a hedge against inflation (the investor believes inflation is going to rise). I question the hyperinflation theory of gold in a market that has currently seen commodities decline such as a barrel of Light Crude which has halved in price.
Price Targets
Short-term (1 week) 1554.3
Long-term (1 month) 1175.0
Trade active:
1554.3 Hit
Trade closed: stop reached
The only saving grace for the bearish perspective is that the 52-week high has not been taken out. An immediate correction to the 1450.9 level at a similar pace to that of the recent rally would perhaps give the gold bear more confidence. But it is clear there is demand for gold at that level.