After falling for the past four months, and respecting the downtrend, gold currently sits in a $10/oz. trading range with a n upside break looking the more likely to occur. The current spot gold price of $1,213.5/oz. is just under the $1,215/oz. downtrend and the 61.8% Fibonacci retracement level at $1,215.4/oz. A break and close above here opens the way to $1,222/oz. (20-day ma) before $1,236.6 (December 12, 2017 swing low) and $1,244/oz. (50% Fibonacci retracement). The RSI indicator is just coming out of oversold territory and pointing higher. Gold has broken and closed above the downtrend before - the last time on July 10 - before returning to trend, but recent price action and base building over the last week suggest a break higher should hold now.
The latest IG Retail Sentiment Indicator shows that traders are 87% net-long of the precious metal , a bearish contrarian sentiment indicator.
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Chinese Yuan May Support Gold
The correlation between gold and USDCNH remains firmly in place and may also provide support for an upward move in the precious metal. The recent escalation in US china trade wars and tensions has seen the Chinese Yuan depreciate from a late March low of 6.25 to a current level of 6.84 with gold moving in lockstep with the move. As the USDCNH moves closer to the January 2017 high around 7.00, there will be increasing pressure to cap the move, halting the bearish gold trend. US President Trump remains vocal and vigilant over the level of USDCNH, which he sees as damaging the US economy, while a continued weak Chinese Yuan could prompt capital flight from Beijing towards the greenback.
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If both CNHUSD and Gold break these two important levels - 7.00 and $1205/oz. respectively - and especially at the same time, then traders will need to reevaluate positioning in both the asset classes.
Reference: DailyFX
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