Gold faces test of key technical support, can buyers pull through?

  


Gold fell to a low of $1,817.50 earlier but has since rebounded strongly

Gold D1 11-01

Gold is now trading back to near unchanged levels on the day, bouncing by about $30 after the earlier drop as it woke up on the wrong side of the bed after the weekend.

Dollar gains and rising yields have heaped quite a bit of pressure onto gold since last week and this is putting buyers on the spot as we see price action test its 200-day moving average (blue line) as well as the 61.8 retracement level of the rise in December.

The two levels are seen @ $1,839.77 and $1,839.12 respectively now.

Adding to that is the low today nearly running into a test of key trendline support stretching back to the March lows. That level is seen @ around $1,813.90.

Below that, the $1,800 level as well as the 30 November low @ $1,764.80 will act as key support levels for gold should we see the downside momentum extend.

For the most part, I would argue that the drop in gold has corresponded with the sharp rise in real yields as of late and that is rather evident as seen below:

Gold USGG10YR

At the end of the day, it comes down to how sustainable is the recent uptick in real yields going to be. I’m still on the side of the fence arguing that it isn’t going to be one that lasts all too long – unless the Fed decides to change its stance in the next few months.

As such, when you still weigh up the reflation trade narrative and the big picture view that the dollar will struggle for the most part this year, gold still holds strong fundamentals to gain despite the latest technical scare.

Sure, there is the possibility that things could still get uglier in gold on a drop below the 200-day moving average and the $1,800 level.

However, I would argue that dip buyers will be there to swoop in on any bargains and I’d be one of them as well unless there is a change in the fundamental narrative.

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