Gold is trading steady to lower late Tuesday in a choppy session with sellers taking direction from firm equity prices and buyers getting some direction from a weaker U.S. Dollar. Fundamentally, traders were moving money out of gold due to the lifting of coronavirus-related restrictions.
Gold investors are paying close attention to what the recovery will look like. Right now the assumption is that a V-shaped recovery will be bearish for gold, while a U or L shape may be more favorable. The shape of the recovery will determine how much gold investors or hedgers will want to hold as a diversifier against risk.
Furthermore, there is the problem with the U.S. Dollar. A scenario where stocks break sharply could drive the U.S. Dollar higher because of safe-haven buying. At the same time, they are likely to sell gold to raise cash to cover losses and to meet margin calls.
If there is a rebound in the number of coronavirus cases or if the curve doesn’t flatten fast enough, we could see a repeat of March. We’ve all seen the playbook so don’t be surprised, just react. If you don’t remember, it started with aggressive dollar-buying. Gold really didn’t start rallying until the central banks and governments started throwing money at the problem.
At 17:29 GMT, June Comex gold is trading $1722.20, down $1.60 or -0.09%.
Daily Swing Chart Technical Analysis
The main trend is up according to the daily swing chart, but momentum is trending lower. A trade through $1764.20 will signal a resumption of the uptrend. The main trend will change to down on a trade through $1666.20.
The minor range is $1788.80 to $1666.20. Its 50% level or pivot at $1727.50 is controlling the direction of the market this week.
The short-term range is $1576.00 to $1788.80. Its retracement zone at $1682.40 to $1657.30 is support.
The main range is $1453.00 to $1788.80. Its retracement zone at $1620.90 to $1581.30 is major support.
Based on the price action and the current price at $1722.20, the direction of the June Comex gold into the close on Tuesday is likely to be determined by trader reaction to the pivot at $1727.50.
A sustained move under $1727.50 will indicate the presence of sellers. If this move creates enough downside momentum then look for the selling to possibly extend into $1682.40, followed by $1666.20 and $1657.30.
Overcoming $1727.50 late in the session will signal the return of buyers. They may try to retest the pair of main tops at $1764.20 and $1788.80.
The formation of the secondary lower top at $1764.20 should be noted. This usually indicates the presence of short-sellers, not just profit-takers.