Spot Gold price is gaining the long-awaited momentum in the market, and the prices are again above the psychological barrier of USD 1,500 per ounce and are currently at USD 1,552.30 (as on 3 January 2020).
The Australian dollar-denominated gold is gaining as much momentum as USD spot with prices breaking the bullish flag pattern on the weekly chart, which could now bring the smile over the face of ASX-listed gold stocks, that were under pressure for a while amidst consolidating gold price.
To know more about the pattern, Do Read: Gold Signals Positive Upcoming Trend- Western Australia’s Large Gold Discoveries To Benefit?
The break in price pattern is backed by geopolitical events, such as the US drone attack on Iran, killing the top Iranian general. Further, the US has warned Iran that 52 more sites would be attacked if Iran retaliates.
Is Gold Ready for the A Major Leap?
XAUAUD Weekly Chart (Source: Thomson Reuters)
On the weekly chart, Australian dollar-denominated gold spot broke out of the bullish flag pattern with decent volume; however, the prices are yet to retest the breakout level, which might or might not occur. The breakout is supported by the 14-day Relative Strength Index, which rose above the mean value of 50.
As per the classical chart theory, to measure the target price, chartists consider the height of the pole of the bullish flag pattern (pole- marked with a green line on the chart shown above) and predict the upside potential target by taking the vertical line connecting the base to the tip of the flag pattern (as marked in white) and projecting the same from the breakout level.
The technical chart suggests that gold is now set for a grand rally, with a potential 25% up move, with the prices having potential to trade close to $ 2,800 an ounce. However, investors should also factor in the fundamental aspects before conjuring any position in the market. Gold prices get impacted by various geopolitical and macro factors; and, investors should closely monitor the economic data to build confidence over the technical indication.
The recent ease in the bilateral trade dispute between the United States and China is also a potential risk for gold, and investors should watch the development across the trade front thoroughly to anticipate the moment in gold prices ahead with some degree of confidence.
Keep Your Safety Margin
XAUAUD Weekly Chart (Source: Thomson Reuters)
On applying the Bollinger band, which measures the 2 standard deviations around the mean average price, it could be observed that the spread between the upper line and the bottom line is increasing on the weekly chart, which further suggests that the volatility is increasing in the gold prices. Thus, investors should keep a margin of approx. 2 to 3 per cent on every breakout and retest actions.
Gold spot is currently taking a hurdle at the mean of the 14-week Bollinger band, and it would be advised to wait for a breakout above the mean value with a safety margin (as suggested 2 to 3 per cent). Once the prices breach the mean value, the upper line would be the immediate resistance.
The Fibonacci series on the weekly chart suggested resistance level or potential target as below:
Let’s Narrow It Down
XAUAUD Daily Chart (Source: Thomson Reuters)
On narrowing down to the daily chart and post applying the multiple short-term and medium-term exponential moving averages, we witness that the pair of short-term exponential moving averages are now moving above the medium-term exponential moving averages, which is establishing a positive crossover, and reflecting that bulls are gaining strength in the market.
The indication from the positive crossover is further complimented by the above mean 14-day Relative Strength Index (56.43) and rising 14-day momentum indicator (25.89). The 14-day momentum is further aligned with the 14-day Relative Strength Index as both the indicators are in an upswing, which along with a positive crossover from multiple exponential moving averages suggest that the glitter in gold is back for now.
Key Events to Keep under Radar
The above-mentioned data are generally considered as the most pivotal data to gauge the economic conditions, and generally have high impacts across the commodity and stock market. Investors should observe each data closely and assess the impact of each data on gold prices.
For example, the Caixin Manufacturing Index was reported at 51.5 against its market projected value of 51.7 and the previous value of 51.8, which further suggests that manufacturing activities in China remained slower against the market expectation in December 2019, which is a supportive factor for gold and a negative factor for base metals.
To summarise, gold spot broke out of the bullish flag pattern, and is set to rally in the market; however, there is an array of macro data, which dictates the price, and investors should closely monitor them to maintain some degree of confidence in the outlook provided by the technical charts. The current indication from both the weekly and daily chart is strong, which suggests gold might glitter very soon.
However, considerable volatility exists in the bullion market, which might whiplash the short-term trades with magnified profit and loss; thus, investors should consider their personal financial goal and expectation carefully.
While the gold market is looking bullish, investors who want indirect exposure might turn their head towards ASX listed gold stocks, which directly relates to the gold price actions along with equity factors. ASX gold mining companies are currently under expansion with many exploration activities fuelling over the gold 2020 outlook.
The current low-interest-rate coupled with high price-to-earnings in the market is also a good sign for the gold enthusiast; however, being a commodity, gold has its own risk factor, which needs to be thoroughly considered by the investors before falling for the shine.
To Know More, Do Read: ASX Gold Stocks- A Healthy Buy For Profits?
This website is a service of Kalkine Media Pty. Ltd. A.C.N. 629 651 672. The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine Media does not in any way endorse or recommend individuals, products or services that may be discussed on this site. Our publications are NOT a solicitation or recommendation to buy, sell or hold. We are neither licensed nor qualified to provide investment advice.
There is no investor left unperturbed with the ongoing trade conflicts between US-China and the devastating bushfire in Australia.
Are you wondering if the year 2020 might not have taken the right start? Dividend stocks could be the answer to that question.
As interest rates in Australia are already at record low levels, find out which dividend stocks are viewed as the most attractive investment opportunity in the current scenario in our report.