Gold Bulls Still Need To Prove Themselves

New York (Dec 3)  The below is the weekly chart of the XAU/USD price. Yesterday saw a large sell off in the risk-on assets. One would expect gold, as a safe haven, to be a direct beneficiary of this decline. However, the precious metal bulls still need to prove themselves. We note that gold’s RSI is moving from a relative oversold level (green rectangle) and beginning to normalise. It’s fairly shallow for an oversold level but this is because of the previous strong impulse move up from June to August i.e. the recent pullback in gold may be overdone on a relative basis.

There is all the reasons for market participants to start reallocating capital to the havens. The risk-on market rallied on the basis that a phase one deal will be concluded. This has not materialised with President Trump now hinting that a deal may only be concluded after the 2020 elections. Moreover, trade tariffs are being aimed at Argentina, Brazil and France. These headwinds may feature in future Fed statements, adversely affecting the greenback. If so, gold should be a natural beneficiary here as well. However, price will need to close above the recent candle cluster high (aqua ellipse) to give weight to a higher trough scenario. We continue to monitor.

Past performance is not an indicator of future results.

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