Gold has declined for 5 consecutive weeks
Gold prices fell to the lowest since 2010 this week but there are glimmers of hope, at least in the short term.
Here are three reasons why.
For starters, it's severely oversold. The daily RSI is at 14.8 and the weekly is at 30.
I don't use overbought/sold indicators often because they give false signs in a breakout. A market can stay oversold like gold for weeks without a significant retracement but unless some kind of drastic bad news hits, it gets harder and harder for it to fall without a squeeze.
There is demand for safe havens, just not yet gold. US 30-year yields fell to a six-week low below 3.00% on Friday. That's a sign the market is skittish about long-term growth and riskier assets like stocks.
Lower yields imply the FOMC might not be quiet as hawkish when the Federal Reserve meets next week, or may highlight a very gradual pace of hikes after liftoff later this year. The gold market is spooked about that first hike but beyond that, a patient Fed is good news for gold.
The 2010 low of $1044 is nearby. That represents another $40 of downside but bottom-pickers are likely to make a stand ahead of it and that could be a catalyst for a retest of the November low of $1131.
When markets break ranges without a game-changing kind of catalyst, they tend to go back and retest the old range before extending the move. We call this the 'buyers/sellers remorse' and it's a better bet that we see $1125/35 before $1044.
Despite the hopeful reasons for a short-term bounce. I'm firmly in the bearish camp for gold. Any bounce should be used as an opportunity to sell.