Chart Of The Day: Exceptional Buy Signal For Spot Gold
With rising for the third day, could gold be reclaiming its glittering crown? Several analysts, including those at Goldman Sachs, seem to think so. And the technicals appear to agree with them.
Indeed, Goldman sees the asset on its way back to rallying after the Fed extreme measures to pad the economy, keep borrowing costs low and avoiding a credit crunch amid the coronavirus pandemic shock.
The investment management firm says there’s a direct link between the promise of availability and gold’s return to safe haven status, as investors will not be as hard-pressed to sell all assets to free up cash.
As well, a return to full-on quantitative easing, through which a never-ending supply of dollars is meant to reduce the value of each unit, is likely to send investors back into gold in droves.
Peter Spina of GoldSeek.com, a precious metals newswire, expects the yellow metal to reach $1,700 this week or the next, predicting it will see $100-$200 leaps with no pullback. Spina adds that the virus-related disruptions to the physical asset supply chain will likely lead to a “perfect storm for a super price spike.”
Our technical analysis backs up these conclusions.
XAU Daily Chart
Spot gold blew out of a bearish flag, which included three days underneath the 200 DMA for the first time since prices fell below the infamous moving average in mid-2018. The price also bounced right back into its rising channel.
At the same time, it was slicing through another moving average each day: from the 200, to the 100, and today, through the 50 DMA, at least on an intraday basis.
A close above the $1,600 level, an important support-resistance level since Jan. 6, would be the most comfortable scenario, in our view. We also wouldn’t be surprised if prices pulled back, or at least consolidated, before continuing higher.
The price action over the past three days has been encouraging. It’s produced three full bodied, long candles, or “Three White Soldiers,” a pattern that signals a bullish reversal.
The RSI is about to cross over its downtrend line that began before that of the price, which took it 12% lower. Meanwhile, the RSI has climbed above a support-resistance level since Feb. 4. The MACD’s short MA is also climbing toward a cross above its long MA for a buy signal.
The “Three White Soldiers” generally signal overbought conditions. However, as can be seen via the RSI and the MACD, that’s hardly the case this time.
Conservative traders would wait for a new high above the March 9, $1,709.96 to reaffirm the uptrend, then wait for the pullback, before committing to a long position.
Moderate traders may go long after a close above $1,600.
Aggressive traders may go long now, provided they accept the risk of a potential pullback before the price continues higher.
- Entry: $1,590
- Stop-Loss: $1,560 – bottom of the rising channel
- Risk: $30
- Target: $1,680
- Reward: $90
- Risk:Reward Ratio: 1:3