Gold prices recover, but don’t be flash-crash fooled.

 Gold recovered most of its early Monday morning flash crash losses but still finished the day down 1.90% at $1729.50 an ounce. Gold has traced out some anaemic gains in Asia, rising 0.25% to $1733.50 an ounce as Singapore and Japan investors returned from holiday. However, gold closed well below its $1750.00 an ounce breakout, leaving the technical picture looking grim.

 

A firmer US Dollar and US yield curve ensued that gold would never make it back to $1750.00 an ounce overnight, as the flash-crash left bullish gold traders traumatised anyway. That said, gold will probably consolidate ahead of the US CPI tomorrow as its Relative Strength Index (RSI) remains in oversold territory. I am anticipating a $1720.00 to $1750.00 an ounce range ahead of that data.

 

In months past, I often mentioned structural support in the form of the 61.80% Fibonacci retracement of the March 2020 rally, which lies around the $1680.00 to $1685.00 an ounce region, depending on how thick the lines are you draw on your charts. Being over 50 now (I covet Harley Davidsons) and wearing glasses, I chose the “broader” lines. The flash crash yesterday bottomed around this region (according to my charts), emphasising its longer-term importance. 

 

Accordingly, although I expect gold to range between $1720.00 and $1750.00 over the next 36 hours, a daily close below the Fibonacci support at $1680.00 to $1685.00-ish is a powerful signal that gold is set for a deeper correction, initially targeting $1550.00 and then $1500.00 an ounce. It seems that gold inflation-hedging abilities in the modern age are confined to hyper-inflation and not bog-standard “normal” inflation, transitory or otherwise. Gold’s fate hinges on tomorrow night’s US CPI data.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley is OANDA’s senior market analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV, Channel News Asia as well as in leading print publications including the New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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