18.04.2017

Geopolitical Tensions Give Gold a Boost

by SAMT

The price of gold is getting close to the 1300 dollars mark per one ounce, after a rally that brought it almost 12% higher since the beginning of 2017.

Most of the climb of the precious metal is attributed to its role of safe haven, especially after the rise of political tensions in Syria and more recently over North Korea, but also a gradual deterioration of the U.S. dollar value, which trends are usually inverse to those of gold, contributed to this rally. In figure 1, where the Dollar Index is compared to gold, it looks clear that since the greenback has begun to depreciate from the 14 years high that had reached at the end of 2016, the price of gold has inverted the down-trend that had subdued it for most of the second half of last year.

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Figure 1: A comparison between the US Dollar Index DXY, (red line), and the price of gold in US$ per ounce (black line). The gold started its rally at the beginning of 2017, in coincidence with the corrective move of the greenback from the 14 years highs. Source: Tomaselli-Vivanti Analysis - Chur

The chart of figure 2 shows the significance of the recent move. In fact, it broke an important resistance above 1260, the two highs of February and March joined by an unusually flattened 200-day average. Such breakout could well be considered as a bullish signal, since it confirmed the positive direction of the trend that had started from the cyclical low of the last December and the momentum indicators are also on the rise. Yet, an important resistance is now approaching: the down-trending line originated by the series of descending highs of summer 2016 corresponds to the high of last week at 1285. At 1300 we find another important resistance: 1300 is not only a psychological level but also a former recurring support-resistance level in 2016. Therefore the 1285/1305 area is likely to generate some profit-taking towards the former resistance 1285/1245 that is now a support zone.

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Figure 2: Gold in US$ per ounce. Daily data since September 2015 to date with a MACD indicator 9/12/26 in the upper window. Source: Tomaselli-Vivanti Analysis - Chur

Finally, let’s have a look at the global picture. In the historic chart since 2002 shown in figure 3 we can see that the 2011 high at 1920 had originated a down-trending channel that, three year after, had interrupted the historical trend that had started early this Century. A bullish pattern has then formed with two higher lows above 1000, around the 50% retracement of 2001-2011 uptrend.

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Figure 3: Gold in US$ per ounce. Weekly data since 2002 to date with a MACD indicator 9/12/26 in the upper window. Source: Tomaselli-Vivanti Analysis - Chur

 

Furthermore a major bullish divergence is forming between the price and the 12/26 MACD indicator calculated on weekly data. Two major cyclical lows, one greater than the other, have formed in 2013 and 2016 on the indicator, which by the way is trying to recover the positive readings. This could anticipate the interruption of the bearish channel 2011-2017 but needs an important confirmation above 1375. It is the 2016 high, but also the bearish trendline 2011-2012.

 

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Alberto VIVANTI - SAMT Vice President - Graubünden and Liechtenstein Chapter– alberto.vivanti@samt-org.ch

Disclaimer: the above article is for general information and educational purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.

 

 


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