Hawaii Six O - Gary Wagner
Gold Reclaims its safe-haven allure
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
The last couple of weeks have contained extreme volatility in both the equities markets as well as the safe haven asset group. When U.S. equities began to selloff dynamically, we saw gold follow in tandem trading to lower pricing. It was not that gold lost its safe haven luster, rather it was mass liquidation of all assets as traders went either into cash or bonds.
However many gold enthusiasts believed that at some point if the equities markets continued to trade lower due to the coronavirus, and there was no real hope for a quick discovery of a vaccine for this disease that safe haven assets would once again be one of the most logical and solid places to park your money as equities ran to new lows.
On Friday of last week, we saw gold have its last dynamic drop in which it opened at approximately $1646, and closed and closed just above $1560. This was the last major decline in gold last week. Although this week started off with a whimper it did close above Friday’s close, however it had a very small range between its open and closing price creating a candlestick called a “Doji”.
While this particular candlestick can indicate indecision in the market, a point in time which neither the bullish or bearish faction can maintain dominant control, it can also indicate the time in which one faction loses control as the other faction regains dominance. In the case of Mondays “doji” candle it was a clear indication that the bearish faction had lost control and a pivot, or key reversal was about to begin.
What followed was a $42 upside move when on Tuesday the Federal Reserve announced an emergency rate cut in between FOMC meetings. This highly unusual action was in tandem with similar moves by other central banks globally. This signaled at least in the minds of central bankers that the current coronovirus, was continuing to spread and more importantly the possibility of an epidemic in China becoming a global pandemic increased.
Yesterday’s action was similar to Monday’s in that although it contained a higher high and a higher low, the open and closing range was very narrow. Even though yesterday’s high was slightly above Tuesday’s high, the high on Friday and Tuesday were exactly the same which technically created a double top. When gold traded above that top today it changed the short-term outlook and confirmed that there is a high probability that the rally which began this week could in fact challenge the yearly high of $1691 per ounce.
When you create a retracement from the high achieved on February 24 at $1691 to Friday’s low, the 61.8% Fibonacci retracement occurs at $1643. The fact that gold broke and closed above both the 61.8% retracement and the double top created from Friday’s and Tuesday’s highs is extremely significant.
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Wishing you as always, good trading,