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XAUUSD - Steady Above $1500 as US Equities Fall Sharply on Recession Concerns

   

 

XAUUSD - Steady Above 1500 as US Equities Fall Sharply on Recession Concerns
 
In the last week or so, gold has been content to trade in a narrow range resting on some support at $1500 as it trades at six year highs. Two weeks ago, gold surged higher off support at $1400 towards the recent six year high above $1450, which was reached two weeks ago, before its recent surge higher yet again. It was well supported by the $1400 level for the last month or so, and any time it has moved lower, it has been quickly bought up and supported, pushing it back above this level. If gold was to decline from its current highs, you could reasonably expect it to receive support from $1400 again.

In late June, gold enjoyed a strong surge higher through resistance at the $1350 level, which had been repelling prices despite multiple rallies to push through that level, after having provided stiff resistance to gold on numerous occasions in the last couple of years. The $1350 level is also likely to offer support to gold should it decline from its current levels.

Leading up to its recent range below $1350, gold surged higher to move sharply away from the key $1270 level, through any resistance at $1300 and to a then one year high just shy of the $1350 level. It had been content for the week or so prior to enjoy support from the $1270 level, a level which had ably support the precious metal for the last six weeks or so, despite its best efforts to push lower.

In May gold surged higher to its highest level in a month reaching and testing the key level of $1300 before declining again back to $1270 and for the best part of April and May, gold consolidated and traded between $1270 and $1300, before its recent surge and departure from this trading range. Earlier in April, gold fell sharply from sitting just above the key level of $1300 to fall to a new low for 2019 just below $1270, where it received solid support from. Several months ago, the $1300 level played a significant role with gold and offered strong resistance to any movement higher. This level will be likely to also offer some support now should gold return back below the $1350 level.

A wide variety of risks have sent gold to its highest levels in more than six years, and is leading investors to take a ‘risk-off’ approach to their portfolios, as they are uncertain about near-term global economic trends and are likelier to gravitate toward low-risk assets.  To add to gold’s appeal, US equities fell sharply on Wednesday after the U.S. bond market indicated a troubling signal about the state of the U.S. economy.  The Dow Jones Industrial Average dropped 800.49 points (3.05%) which was easily its biggest fall of this year and its fourth largest point drop of all time. What caused the drastic fall was the yield on the benchmark 10-year Treasury note, which broke below the 2-year rate, which is an odd bond market phenomenon that previously has been a reliable indicator of economic recessions.  For market participants who were therefore worried about the state of the economy, this was an invitation to rush to long-term safe haven assets.  According to data from Credit Suisse, there have been five inversions of the 2-year and 10-year yields since 1978 and all were precursors to a recession.

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