Market Report: Technical Rally Holds

7 Nov 2016

by Alasdair Macleod, GoldMoney:

It has been a better week for gold and silver, with gold rising from $1284 to $1302 by Friday mid-morning London time, and silver from $17.76 to $18.34.

Gold in particularly found its support at the 200-day moving average, and has run into some predictable profit-taking at $1300, which is also the approximate location of the 55-day moving average. This is shown on the next chart.

Technically, some consolidation at this point makes sense, so that an assault on overhead supply between $1315-$1350, evident on the chart, might have a good chance of success.

In the absence of other considerations, this chart should be a reasonable guide to likely prices on a one to three-month view. However, there is much bubbling just under the surface. The US Presidential election is taking an unexpected turn, with the Clinton camp being torpedoed by the FBI, which has renewed its investigations into the email scandal. The S&P 500 index has broken the important 2120 level, and is now struggling to hold 2000. Bond yields have dropped slightly this week, with the US 10-year Treasury now yielding 1.812%, after having risen 50 basis points since July.

Traders are interpreting these moves as a response to increasing uncertainty over the Presidential Election. It certainly makes sense on a safe-haven trade to sell equities, buy bonds and gold. But sense is subjective, and explanation of price moves are usually little more than an attempt to match price moves with news headlines.

This risk-on trade tied to the election news might make sense, but it ignores the build-up of armed forces between NATO and Russia in Eastern Europe, which is a lot more important in the scheme of things, than the Presidential election. One can easily visualise central banks and regional sovereign wealth funds acquiring physical gold as protection against geopolitical tensions.

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