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Research Analyst

Gold down as risk on prevails

Gold down as risk on prevails

Gold reached an all-time high earlier this week as it cleared the $1,750 level. It was able to reach bids at $1,765 before the US trading station started for the week. However, this rally was not sustainable as Risk on prevailed. This was due to Moderna reporting positive data on their early-stage Coronavirus vaccine trial.

Candlesticks represent Gold, Blue line is the SP500

Gold retracted back down to $1,725 today as Risk on sentiment prevails in the market. This has been most notable in the oil market. Both WTI and Brent Crude reach highs since the start of the Coronavirus breaching $34 and $37, respectively.  This is on demand for oil slowly picking up across the world, alongside supply cuts materially taking into effect. Furthermore, both commodities have been susceptible to the Risk on / Risk off dynamic that has been playing out in the markets recently. Alongside this, the SP500 has been stuck in a consolidation zone since the end of April. This is due to Investors / Traders gripping onto any good news with regards to any advancements to Coronavirus vaccines.

Strong risk on / risk off dynamics in Gold create strong supports and resistances

Strong news breaking supports and resistances

Gold has been experiencing similar consolidation patterns as market sentiment shows genuine uncertainty with the future of the economy. Therefore, this creates strong support and resistance lines within the consolidation zones that traders may trade with reliability. A breach of these supports and resistance may show strong positive/negative news with regards to Coronavirus vaccines. Therefore, on quieter news days, traders may use these support and resistance lines for hourly and 4 hourly reversals.

However, fundamentally we may see a retest of the $1,750 level again. Tensions between the United States, Australia, and Hong Kong towards China have slowly been increasing with regards to trade. Furthermore, the possibility of a second wave is still not out of the question, with many more disappointing results with regards to Coronavirus trials being likely. However, CEO Pascal Soriot of AstraZeneca, stated that they are confident that there is a good reason for vaccine trials to work.

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