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Gold Correction Coming to an End

11 December 2020

Precious Metals Commentary

Gold recovered strongly on the 50 % retracement at US$1763 mentioned last week.  The rally stopped just above the 61.80 % Fibonacci retracement of the move from the November high to the November low (US$1966 to US$1763) where the counter move ran out of energy at a level just below the 50 day Moving Average.
The DXY (Dollar Index) fell even further to make a low of 90.476 before the Dollar staged a slight recovery after beginning to look slightly over-sold on the 7 weekly Relative Strength Index. That is likely to have helped put a cap on the short-term rally in the gold price.
Resistance in gold should come in at US$1888-1910 from the 61.80 % Fibonacci retracement of the November-November move referred to above and the base of the Daily Cloud.
CME Open Interest increased by 1.15 million Tozs since the last CFTC publication date (the first of December) suggesting that fresh speculative longs are returning to gold on the dip in the price after two weeks when Managed Money length declined by about 0.50 million Tozs from the middle of November.

XAU Daily Bars – note resistance at the 50 % retracement of the Nov-Nov move and the 50 day MA.

 
Overview of gold ETF flows
Outflows continue, with total holdings down to 106.80 million Tozs. 
 


The Weekly SPX chart.
Equities remain very well bid – the high (so far) on the SPX, 3,713, has almost reached the 3,785 target on the Daily Point and Figure and I expect the index to weaken after hitting that level.  

 
 
 
 Silver…
Silver has rallied up to the Daily Cloud, hit resistance, and then dropped back just below the cloud, finding support so far above the Daily Turning Line at US$23.73. Notably there is a trend line resistance coming down from the recent highs which silver struck on the 8th of December and then weakened. (See the Daily chart below.)
 
Daily Bar Chart - XAGUSD

 
The RBA and the AUD
Technically speaking, little has changed from the previous week’s comment, which it will be simple to repeat below. Since last Friday, Australian bonds have strengthened with A$2 billion in bond purchasing from the RBA in the 7 to 10 year section of the curve.
This week an auction of 3-month Australian Treasury bills were auctioned at an average yield of 0.01 %, with the most aggressive bidders paying enough that they received treasuries at a negative yield of -0.01 %. Analysts said that this reflected a market awash with liquidity, partly from the RBA ‘Term Funding Facility’, which has been tapped to the tune of A$84 billion so far.
Australian CPI came in at 3.50 % - in line with expectations
The next RBA decision will take place on the 2nd of February 2021.
The previous week’s comment: targets for the AUD are for strengthening to go to 0.7530-0.7540, before the currency engages with a long-term downtrend resistance area, where it is possible to envisage the AUD cycling lower again.
The growing trade and diplomatic spats with the People’s Republic are a concern and could be damaging to the Australian Dollar. China is a key market for Australian exports, taking over 150 billion AUD of exports in 2019-2020, according to DFAT figures.
See the AUD chart below with targets:
 
AUD Hourly with targets
 

 
The USD (via the DXY)
The break lower found support at 90.476. Resistance at 92.60. Deeper support in the long term at 88.22.


Regards,
Nicholas Frappell              Global GM