Gold Bounces Back Off The Lows

Another week comes to a close in financial markets and as we pull into the middle of August it’s been a relatively quiet week. Summer trading is typically much lighter as traders and investors take some much-needed holiday, however, there have still been some interesting moves to note. Chatting with traders this week it seems the big move that is catching the most attention is the rebound in gold prices. The yellow metal collapsed on Monday, spiking lower by almost 5% before rebounding and recovering most of that loss. So, for the traders who got in at the bottom, well done! And to those who didn’t, better luck next week! Let’s take a look at what caused this move and why it was a great trade.

What Caused the Move?

The spike lower in gold this week was pre-dominantly a reaction to the uptick in USD on the back of the recent July labour reports. With US data improving strongly recently, Fed tapering expectations have started to build again. These expectations were heightened in response to the July NFP which came in well above expectations. With the unemployment rate falling deeper than expected and average hourly earnings rising higher than expected, USD traded firmly higher.

However, despite the immediate downside shock on Monday as brokers cleared pent up orders from Friday, the market quickly rebounded as the larger theme of resurgent COVID uncertainty came back into focus. With cases of the Delta variant continuing to soar globally, particularly in the US and China, there are fears that the economic recovery will be damaged. In China this week, news that the country’s largest shipping port, the third largest in the world, has been closed as a result of fresh COVID outbreaks, has sharpened these fears, driving safe have inflow into gold.

Technical Views

Gold

The spike lower in gold this week saw price driven down into a test of the 1700 handle and the 2021 lows just below that price. Despite the velocity of the sell off the move was accompanied by strong bullish divergence and quickly reversed higher. The bear channel low also offered further support at that area and with price bouncing back sharply, the market is now retesting the 1763.88 level resistance . This is a key pivot for gold and a break higher here will turn the near term outlook bullish, putting the 1826.71 level in focus next.