Commodities Analysis & Opinion

Gold trades higher but not yet ready for a full reversal

  • Gold jumps higher on the back of geopolitical risks
  • This is the first reaction from the bulls after the strong sell-off
  • Upleg could have legs if momentum indicators align


Gold_2023Oct09

Gold is trading higher today as the bulls are trying to recover part of the significant losses incurred during the nine consecutive red candles that pushed gold from the mid-1,900s down to 1,800. The bulls’ ability to continue this upleg is critical for the short-term outlook of gold.
 
In the meantime, the momentum indicators are not yet fully endorsing the current move higher. The RSI is rising towards its midpoint again, confirming the weaker bearish tendency in the market. Similarly, the Average Directional Movement Index (ADX) has probably peaked and is edging lower; an indication that the recent downleg has probably ended for now. More importantly, the stochastic oscillator has crossed above its moving average (MA) and it is preparing to jump above its oversold territory. If this takes place, it could be seen as a strong bullish signal.
 
Should the bears regain market control, they would quickly try to break the 50% Fibonacci retracement of March 8, 2022 – September 28, 2022 downtrend at 1,843. They could then try to push gold towards the 1,789-1,795 area, which is populated by the October 5, 2012 high and the 38.2% Fibonacci retracement. This is a key area for medium-term sentiment and the bears could also be given the chance to record a new 2023 low.
 
On the other hand, the bulls are probably keen on building upon the current reaction. They could try to stage a move towards the busy 1,896-1,916 range that is defined by the Jun 1, 2021 high, the 61.8% Fibonacci retracement, the 50-day simple moving average (SMA) and the May 4, 2023 descending trendline respectively.  Overcoming this range appears to be a very difficult task for the bulls but if successful, it will open the door for a stronger rally.
 
To sum up, gold bulls have found the necessary strength to react after a sizeable downleg, but for the current rally to continue they need to draw strong support from the momentum indicators.

Source

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