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Is Gold a Safe Haven Again?

We are entering potentially volatile times. UK Prime Minister Theresa May  has just made it clear she is planning for a “hard” Brexit from the EU, while on Friday, 20th January, Donald Trump will be inaugurated as arguably the most controversial US president in modern times. There is uncertainty surrounding interest rates in the US, fuelled by the expectation of rising inflation.

Unsurprisingly, given the political and market turmoil caused by these fundamental forces, there has been a lot of comment in the financial press about the possibility of a flight back to gold as a safe haven. So it is timely to take a look at how this precious metal has been behaving since the election in the US, and the outlook for this commodity from a technical perspective.

The weekly chart of gold above clearly shows gold to be in a confirmed down trend with the latest swing low bouncing off a historical support level of 1,122.  At present, we see this chart to be interacting with old resistance, it’s approaching the Fibonacci sell zone plus is currently situated in the moving average sell zone (that zone between the 10 and 20 period moving average). This cluster of resistance looms above price and could ultimately prove too strong, but only time will tell. The lower time frames look decidedly more bullish as in the daily chart below.

The daily time frame has a good bullish trend and price has broken the 1,200 psychological level. The moving average geometry is far from perfect on this chart, with only the 10 and 20 period Moving Averages in the correct order, however both the MACD and the RSI are strongly convergent. That denotes a potentially strong and robust uptrend.

The fledgling uptrend and its strength become even clearer when we look at the next available lower timeframe; the 4-hour chart.  We can now clearly see a well- established uptrend, with a clear series of higher highs and higher lows.  This chart exhibits optimal chart structure, with nice even smooth-flowing, deliberate price action, and no gaps, spiky candles, and/or erratic price action.  Furthermore, we see strong Moving Average geometry, with the 10, 20, 50 and 200 EMAs all in the correct order and fanning with good separation between them.  Importantly, this chart shows that the psychological level of 1,200 could now act as support during this latest pullback.  Although the indicators are not strongly convergent, the lack of divergence means there are no contra signals to the strength of the trend.

From the evidence presented in the three charts above, one can surmise that the uptrend in gold is at a key price point where the old, weekly down trend is likely to feel pressure from the newly established up trend on the lower timeframes. Which timeframe will eventually win out? It’s difficult to say without divining the future from a crystal ball, however, in the current fast- paced, fluid, and dynamic global environment, things can change quickly and dramatically.  If the support at the 1,200 level can hold, then in all likelihood the upward momentum could continue and potentially test the significant level of 1,300 once again confirming that for the time being, investors and traders are seeking refuge in the safety of this metal. If 1,200 doesn’t hold and the trends begin to reverse on the lower timeframes, then we may see a pullback to the recent low of 1,122 signaling a lack of trust from wary market participants that gold, for the time being, has lost its luster.

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