Bullish Reversal in Play for Gold Bugs

Buyers have twice stepped in to support gold when prices probed 1900, and we now see volumes alongside rising prices with a bearish reversal pattern in play.

Wednesday US cash market close:

  • The Dow Jones Industrial fell -65.38 points (-0.19%) to close at 35,228.81
  • The S&P 500 index rose -29.15 points (2.51%) to close at 34,058.75
  • The Nasdaq 100 index fell -167.77 points (-1.1%) to close at 15,071.55

Asian futures:

  • Australia’s ASX 200 futures are up 10 points (0.13%), the cash market is currently estimated to open at 7,524.50
  • Japan’s Nikkei 225 futures are down -210 points (-0.75%), the cash market is currently estimated to open at 27,817.25
  • Hong Kong’s Hang Seng futures are up 17 points (0.08%), the cash market is currently estimated to open at 22,249.03
  • China’s A50 Index futures are up 11 points (0.08%), the cash market is currently estimated to open at 13,814.33

Just a day after vowing to draw back ‘military operations’ from Kyiv, Russia continued to attack the outskirts if the city. Although the Pentagon have said it appears that Russia have started to move around a fifth of their forces, although suspect this is to simply resupply them for redeployment. Separately, during a call to Mario Draghi (Italy’s Central Bank Governor), Putin explained how to pay for Russian gas in rubles.

US GDP was revised slightly lower to 6.9% q/q from 7%. ADP employment came in softening than expected, adding ‘only’ 455k to the 486k forecast. Core PCE remained at 5%, whilst PCE was upwardly revised to 6.4% from 6.3%.

The Nasdaq 100 fell -1.1% although stopped short of testing 15,000. The S&P 500was down -0.6% and recovered above 4600 after a brief spell below it. The Dow Jones was down -0.19%, formed an inside day but remains above 35,000.

The Fed’s Esther George says that the Fed should move “expeditiously” away from its easy policy stance and their holdings (balance sheet) should decline “significantly” to allow for longer-term rates to rise with their increase of the base rate. On the inverted yield curve (where short-term rates are moving higher faster than long-term rates), she says whilst this has implications for financial stability she is less concerned about it as a predictor of a recession. In a separate speech, Tom Barkin thinks inflation will settle next year as consumer savings are spent and supply chain bottlenecks ease. Furthermore, he will make a call on a 50-bps hike at their next meeting based on the strength of the economy and inflation.

Gold bulls return to the table

We’ve highlighted a few times that buyers have stepped into the market each time gold tested 1900, and then rallied back above the June high of 1916.50. And now we have seen volumes increase as gold reached yesterday’s target of 1930 and break above the neckline of an inverted head and shoulders pattern. Moreover, a bull flag is now forming around its 100-hour eMA.

The flag projects a target a 1953 and the H&S at 1969.50, although the weekly pivot point around 1944 may provide interim resistance, along with the 1966.12 high. We’re now looking for a breakout of the flag to resume its bullish trend, and our bias remains bullish above 1926.

Hot inflation supports the euro

The euro rallied for a second day and closed above 115 and its 50-day eMA (just) following strong inflation prints from Germany and Spain. The US dollar index fell to a 4-week low and closed beneath 98.0. USD/JPY didn’t produce the countertrend bounce we had considered, but it did stop moving lower and is effectively moving sideways and holding above its 200-hour eMA. We cannot rule out another drop to 121, a break beneath which suggests it has embarked upon a deeper pullback. A break above 122 invalidates the bearish channel on the hourly chart and assumes trend continuation for the daily chart.

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