Gold – Should bulls be concerned?

Gold failing to capitalize on risk averse markets

It’s interesting to see that gold is struggling to break back above $1,290 at the start of the week, despite the risk aversion we’re seeing in the markets and the softer dollar.

Gold Daily Chart

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Gold is a traditional safe haven and often performs well when the greenback is weaker. The fact that it’s struggling to make any real strides to the upside may be a real concern for gold bulls and suggest the downtrend since the middle of February may not have passed.

Gold was actually lower earlier in the session, despite US index futures being off more than 1%. The selling has picked up significantly following news that China will respond by increasing tariffs on $60 billion of their own imports, in response to Trump’s increase, on 1 June. That’s been enough to push gold into positive territory but not yet to make a significant break higher.

If a significant break does follow – and market moves have picked up in the last hour quite clearly – then momentum will be key because a failure to confirm the rally – higher highs on MACD and stochastic – won’t offer any more comfort. Anything that indicates reluctance doesn’t fill me with hope that we’re going to see a big shift in that direction. Confirmation on the other hand would be very interesting.

Gold 4-Hour Chart

The important level to the downside remains $1,265, where gold has run into support on a couple of occasions over the last month. It’s not yet clear that we’ll see a test of this in the near term, with gold continuing to hold around the recent highs but the inability to capitalize on otherwise risk averse markets and a softer dollar is not an encouraging signal.

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Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.