Gold continues to be in the limelight whether its in an uptrend or a downtrend. This commodity is always on the investors and traders radar! From the highs it has lost almost 20% and now seems to be ready to shift gears again.
From an Intermarket perspective, US Dollar index (DXY) and US 10 Years T – Yields have an inverse co-relation with Gold. During 2020, DXY and US 10 Years T – Yields, both were tumbling which acted as good tailwinds for Gold, however post August 2020, Yields started to rise (from 0.49 to 1.77) due to which Gold failed to perform well and remained under pressure. Thus it is important to keep a close eye on Yields as well as DXY.
US 10 Years T – Yield Daily chart:
US 10 Years T – Yield shows that it has tested the downward sloping trend line which connects prior swing highs. Here, the trendline resistance is placed at 1.73-1.78 levels which will be crucial to observe over the next few days. Rate of Change (ROC) clearly shows deterioration in upward momentum over the last 30 days. Thus from hereon, any move below 1.52 will indicate broader consolidation in the range of 1.30 and 1.75. This seems to have started which is likely to support Gold’s rise! On the contrary, a close above 1.78 can maintain the pressure on Gold!
US Dollar index (DXY) Weekly chart:
US Dollar index (DXY) chart shows that the medium term downtrend is intact. Recently a pullback towards the upper Bollinger Band near 93.00 was observed however, post that it has given up more than 50% of the gains. This suggests trend likely towards 89-88 levels has started. Such price action suggest bearishness for DXY which is positive for Gold.
LME Gold Spot Weekly Chart:
Now lets look at Golds trend:
- LME Gold Spot indicates that prices took support near $1676 which is the 61.8% (Golden ratio) retracement of the prior up move from $1452 to $2073 levels.
- 100 week EMA (Exponential moving average) has continued to provide medium term support. It has worked well this time around as well.
- Upward sloping channel which is connecting the prior 2 intermediate lows has acted well as a support which increases the possibilities that medium term lows have been formed near $1676 levels.
- Gold managed to find support near the downward sloping channel and formed a “Double bottom pattern” (on shorter time frames) and now we can expect it to move higher towards the channel resistance.
- RSI turned higher from 35-40 zone and has broken the downward sloping trendline in the indicator. This is also an early sign for a trend reversal.
- MACD is displaying a positive crossover for the first time since September 2020.
- In short, Intermarket analysis followed by the above technical indicators suggest that Gold has bounced back from the crucial juncture and hence bullish probabilities are higher from hereon. However as we are in the game of probabilities, this view will remain valid as long as recent lows near $1675 level are intact on the downside. On the upside it is likely to test the channel resistance near $1865-1870 area. A close above the same zone will be the second bullish confirmation for the uptrend towards $1955-$1960 levels.