Short term: Flat
Medium term: Up
Long term: Up
Resistances:
R1 1,937 50 DMA
R2 2,074.25 all time high




Support:
S1 1,904 20 DMA
S2 1,848.9 Sep low
S3 1,867 100 DMA


Stochastics:
Extended

Legend:

BB – Bollinger band
DMA – daily moving average
ETF – exchange traded funds
Fibo – Fibonacci retracement level
HSL – horizontal support line
MACD – moving average convergence divergence
D/UTL – down/uptrend line
H&S – head-and-shoulder pattern
RSI – relative strength index

Analysis
  • Since the September 24 low at $1,848.50 per oz, the gold price has been able to rebound higher and trade right back above the psychological price level of $1,900 per oz. 
  • The renewed buying pressure from October 7 is currently consolidating and that should give buyers the time to regroup before the yellow metal can venture higher. 
  • But to do so, a solid close above the 50 DMA is needed and only then buyers will have full control of the complex, with a new all-time high the most likely destination. 
  • We are also mindful that gold’s price action is trading somewhat in a potential bear flag formation. 
  • A solid close below the 100 DMA and the September low will encourage more technical sellers to enter the complex.   
Macro drivers

 

Global equities continue to carry positive momentum even when there are rising infections in Europe and the United States, an uncertain outcome for the US presidential election as well as a dollar index which appears to have found a base at 93.00. Although stronger equities may be a headwind, given that we are probably entering a volatile period ahead of the US presidential election on November 3, demand for havens may well remain elevated. 

Covid-19 continues to disrupt gold supply; figures from the Ministry of Energy and Mines of Peru showed gold mine production contracted by 37.6% year on year in August. Meanwhile, record prices continue to have an adverse effect on physical demand. According to the latest demand trends report from the World Gold Council, purchases of gold bar and coins dropped by 32% year on year in the second quarter, while jewelry purchases set a record quarterly low at 251 tonnes.  

Figures from the US Mint, however, show American Eagle coin sales have totaled 15,000 oz so far in October. Sales totaled 22,000 oz in September, compared with only 5,500 oz in September 2019. 

Comex speculators have positioned bullishly in the precious metals sector, with fresh buying on both gold and silver. The yellow metal saw gross longs increased their bullish exposure via the addition of 4,816 lots while shorts covered a total of 112 lots. This brings its net long fund position (NFLP) up to 248,587 lots as of October 6 and this should continue to bode well for gold’s price action to remain supportive.    

Conclusion

 

The 50 DMA is keeping the upward momentum capped for now. Since the record high, gold ran into strong profit-taking, which caused its price to decline hard below the 20 DMA. But the presence of dip-buyers was strong, and the metal found support at the 50 DMA. We are seeing a rather similar pattern here that once the 20 and 50 DMAs are broken, a period of retest and rejection will emerge. While it remains quite speculative, we think that the corrective phase in the yellow metal complex is not over yet. Another rejection from the 50 DMA will set the metal up to break below the 100 DMA which currently resides at $1,867 per oz.  


All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.