‘Gold’en crossover confirmed, China stimulus plans and Brexit uncertainty could limit downside

• The 50- and 200-day MAs have produced a golden (bullish) crossover – a lagging/contrary indicator
• Dips, if any, could be short-lived, courtesy of China’s stimulus pledge and Brexit uncertainty.

Gold is currently trading at $1,290, having clocked a high and low of $1,295 and $1,287 yesterday, respectively.

The daily chart shows a bullish (golden) crossover between the 50- and 200-day simple moving averages (SMAs). That crossover is the product of a strong rally. Therefore, a correction could be in the offing.

The price pullback, if any, however, could be short-lived as China is stepping up monetary and fiscal stimulus efforts to support its sagging economy. The People’s Bank of China (PBOC) injected a record CNY 560 billion via reverse repo operations earlier today. Further, China is reportedly planning large scale tax cuts to boost spending.

History shows that monetary and fiscal stimulus has a positive impact on gold.

Also, political uncertainty in the UK could boost demand for the yellow metal. The odds of hard Brexit may have dropped following the decisive vote in the UK parliament against the May’s Brexit deal, however, “no confidence” vote against May’s government could lead to early elections.

Traders, however, should keep an eye on the USD/CNH pair, which is showing signs of life. A drop in the Chinese yuan could end up pushing the US dollar – gold’s biggest nemesis – higher across the board. In that case, gold could suffer a deeper drop.

Gold Technical Levels