Gold woke up on the wrong side of the bed following the weekend but is managing to hold up for the time being
Precious metals are among the notable movers today with gold having witnessed a drop to near $1,804 to start the day before rebounding by $36 to $1,840 at the start of European morning trade. The gains has since eased to $1,830 levels currently.
Elsewhere, silver also saw a 2% slump to near $24 reversed to hit $25.15 before easing back just under the $25 level on the session.
Going back to gold, price action continues to point towards the commodity being in a more precarious spot as we get things going in the new week.
The break of the 200-day moving average (blue line) at the end of last week was significant and that level now @ $1,844.11 represents a key line in the sand that buyers must break back above in order to establish any potential return of upside momentum.
Meanwhile, any further downside push requires sellers to now break the key trendline support from March to December @ $1,822.37 in order to really contest the $1,800 level.
Thereafter, the 30 November low @ $1,764.80 will be the key support level to watch.
As much as there are strong arguments for gold to gain, one can't simply ignore the eroding technical picture at present. Adding to that is the poor January performance so far, which typically represents the best month for gold historically.
The last time gold experienced a January slump was back in 2013:
That marked one of the worst years for gold, seeing a drop of over 28% – which followed after gold has posted over 500% gains from 2001 to 2012 (gaining in every year).
Since bottoming out in 2015, gold has gained by nearly 79% as of the end of last year and one can argue that stretched positioning in the ETF space is also a cause for consideration for any major pullback in gold at the moment (despite the fundamentals).
That certainly could mark a potential watershed moment of realisation for gold this year – especially if the 30 November low gives way. That would open the floodgates to an accelerated flush in gold towards $1,700 and lower before dip buyers come back in again.
Another separate argument is that gold should rightfully continue to track real yields but the recent divergence to kick start the new week is a bit disconcerting:
However, as long as real yields (now below -1% again) continue to track lower – with the Fed being the main tailwind for that – then gold fundamentals will still be supportive of a move higher; though that doesn't rule out a further squeeze for now perhaps.