Gold is at the highs of the day, up $161 to $4670.
The 3.5% really is the largest since Feb 5 and brings gold back to March 19 levels. The March 17-22 period saw four days of heavy selling in gold that led to a $900 decline from peak to trough. Since then it has stabilized around $4450 until today’s bounce.
Technically, the $4400 level remains the spot to watch. It held in the early-February rout but was broke on four separate occasions in late March. Notably though, it never closed below it and that could be a lifeline for the bulls. On the upside, the 50% retracement of the March range is $4758 and that could be an initial target for the bulls.
Moreso than the technicals, the fundamentals are in full focus right now and gold is trading as a risk proxy. Early in the war, Turkey sold some of its gold reserves and the fear is that other emerging markets will be forced to dump reserves to protect currencies or to cover oil purchases. If there is some kind of resolution to the war, those risks will be significantly curtailed.
Secondarily, gold has increasingly become a leveraged long and with all the volatility, those positions were pared. Initially, that was met by buyers but those dried up in mid-March. Since then though, we’ve seen a standstill and now some strength. It’s clear that the strength will continue if there is a quick end to the war.
What’s less clear is what will happen if the war continues. My instinct is that it will fall but if oil prices don’t rise too far because some ships are allowed through Hormuz, then it could make gains. If China gets involved in peace talks, that could also erode USD dominance in the reason and provide another reason for gold bids.
This article was written by Adam Button at investinglive.com.
