Wednesday, August 8, 2018

Gold poised for a reversal to the upside?

  • Dollar
  • Gold

Written by Konstantinos Anthis, Fawzi Saliby

During the past 3 months, Gold's prices have been under continued pressure, having dropped almost 5% just during the past 30 days. The yellow metal hit a new yearly low on Friday on the back of a series of positive US economic data and a strong earnings' season that made it even more difficult for traditional safe-haven assets to attract demand.

What makes it more interesting is that this decline came at a time of elevated trade tensions between the US and the rest of the world and in spite of sanctions kicking off against Iran, further raising geopolitical concerns. However, Gold's technical outlook may now be pointing towards an upcoming reversal. Prices have been forming a bottom and a move higher from current levels might come next.

So what could act as a catalyst for this reversal to begin? We're looking at two possible scenarios: either a further escalation in the trade spat between the US and its trade partners that might affect US growth and weaken the Dollar or a potential incident with Iran in the Strait of Hormuz raising the threat of war between the two nuclear powers. Both potential scenarios create enough buzz to have traders looking into this as an emerging opportunity.

From a technical point of view, everything is set for Gold to break to the upside. On the 4H chart below, we can see a continuous retest of the descending trend line (purple) since the start of August while the RSI indicates strengthening upwards momentum and a noticeable divergence with the price action. If we see a candlestick closing above the $1214.15 resistance level, it may propel prices towards the $1222.2 figure and eventually towards the $1235 area which also coincides with the 50% Fibonacci retracement - and this will be the level we will be focusing on.