• Gold hit its lowest level in a year last week; but prices bounced from 1210 region
  • Correlation with USDIDX could hint at possible recovery
  • US homes sales miss; GDP on Friday the main scheduled data release

It’s been a tough time of it of late for Gold bugs with the price of the precious metal tumbling after price broke below 1304 back in early May, and the market hit its lowest level in a year during last Thursday’s session. Price had been contained in an uncharacteristically narrow range of roughly $60 from 1304-1365 for the entire of 2018 before the decisive break lower and since then the price has declined by almost $100 to make a low of 1211 last week. 

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 Gold has experienced large declines in recent months after breaking lower out of the range from 1304-1365. Source: xStation

The last two daily candles have had sizable wicks below the body, indicating buying pressure and the recent lows of 1211 could now be viewed as possible support. As long as these lows hold then a recovery may lie ahead with the 23.6% fib at 1248 the first possible target for traders using this technique. The 50% and 61.8% at 1288 and 1306 respectively could be seen as more aggressive targets and they both also coincide with prior swing levels. 

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 Fib retracements of the $150 decline could provide possible targets for longs if the market can hold above 1211 and recover some of its recent losses. Source: xStation

One of the chief reasons for the declines has been a recovery in the US dollar with the greenback in a resurgent mood in recent months. Using the overlay function on xStation we can observe that a fairly strong inverse correlation has been evident between the USD index (USDIDX) and Gold since last December. Note that a move higher in the USDIDX towards the end of April (shown as a fall on the chart due to the inverted axis) preceded the fall in Gold. While the divergence isn’t anywhere near as large at present the USDIDX has been pulling back and could be seen to suggest that some further recovery in Gold is merited going forward. 

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 Gold and USD have exhibited a strong inverse relationship of late and a further pullback in the USDIDX could be seen to support a recovery in Gold. Source: xStation

On the data front it’s a fairly light week for Gold, with the only release of note today the US existing homes sales. The figures are for the month of June and showed a print of 5.38M – below both the expected 5.46M and the prior 5.41M (revised down from 5.43M). There was a fairly muted initial reaction to this data which isn’t uncommon. Friday’s GDP release is the most important scheduled event for Gold this week, at 1:30PM.

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The housing data from the US has been a little worse than expected of late with both existing home sales and pending homes sales falling back to pretty much flat in year-on-year terms. Source: XTB Macrobond