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  • Risk on has been denting golds allure, but equities stalling and USD ripe for an upside correction.
  • Gold moving into a range and bears awaiting next bearish signal.

Gold prices stabilised and rallied beyond $1,710 resistance to a high of $1,722 with some volatility on the grind higher overnight. European traders set the bullish theme for New York to take over the baton and finish off the job. Now it is a question of whether the risk-on mood can continue to fuel the next leg to the downside for gold prices.

At the time of writing, the yellow metal trades at $1,715 within a narrower range to start the day of between $1,713 and $1,716. Looking to the usual suspects, the US dollar is stalling with 97.20 to the upside on the cards at this rate. Also, US stocks are running out of steam ahead of both the weekend and the Nonfarm Payrolls data. We could see some capitulation here of speculative positions which could well be gold’s saving grace at this crucial juncture.

On one hand, a return of risk-on will lead to an exodus of speculative bullish bids to trigger a strong downside correction, setting-off stale sell stops and the scene for a meaningful downtrend. 

$1,700/oz has managed to hold support fairly well so far, but closes below it could be a death knell for committed bulls.

Range-bound trading could dampen momentum signals

“We continue to expect a range-bound market in the near term as risk appetite continues to firm and as open interest and liquidity remain relatively low,” analysts at ANZ Bank noted. “With that said, range-bound trading could dampen momentum signals, but the strong price action this morning amid a risk-off tone has lessened the risk as the trigger for CTA selling move further away, now sitting at $1672/oz.”

Moving forward, still strong ETF holdings along with the prospect of deeper negative real rates, amid improving inflation expectations and mass amounts of monetary and fiscal support, suggest investors will have reason to return to the yellow metal.

On the other hand, the recovery in commodity demand, combined with rising investment flows in precious metals has created the set-up for explosive performance in silver, which suggests this metal may continue to display relative strength against gold.

Gold levels

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