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XAU/USD: This just might be as good as it gets for gold

  • Gold is starting to lose some of its shine as it approached the psychological $2,000 level.
  • Analysts a TD Securities citing arguments for both sides of the coin, but warn of near term corrective phase.

The price of gold is trading at $1,975 within a range of between $1,960.54 and $1,986.76 at the time of writing, virtually flat on the day in consolidation having eeked out a fresh all-time high.

The precious metals remain bid despite growing sentiment that the greenback needs to correct.

The US dollar has been overextended vs the G10 FX and we have seen a correction to the 10-day moving average at the start of this week and price settle back to a prior supporting candle within the recent sell-off.

However, the environment for gold remains favourable for the bulls on the longer-term despite the case being made for a near term corrective phase with the dollar, interest rates, inflation expectations and positioning metrics all approaching key levels.

Thus, as analysts at TD Securities explained, a continued surge beyond $2000/oz might prove unattainable in the near-term.

The analysts are otherwise citing bullish factors such as poor economic data across the US and Europe that are keeping the hopes for further stimulus high, the dollar weak and real rates on a firm downtrend, with 10-year real rates approach the important -1% level. 

Bullish best are being pulled

However, the analysts acknowledge that some evidence suggests that this just might be as good as it gets for gold.

In particular, 100% of the momentum indicators computed in our ChartVision tool, which aggregates 75 technical signals across momentum and mean-reversion strategies, are pointing long in gold. While not a timing indicator, this has historically coincided with market tops as it has been followed with periods of consolidation.

This coincides with our interpretation of an 'overshoot', as excessively positive sentiment, frenzied speculation, and signs that consensus themes are driving trading decisions have all conspired to send gold prices far beyond its observed drivers over the past months.  

Gold levels

 

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