Day one: our potential spot gold trade

Potential strategy: waiting for a sell signal on spot gold and will advise on exit levels.

Spot gold has been in a solid uptrend this year, however momentum has stalled and I am looking to see if momentum and trend indicators provide a bearish signal in the coming days.

On the daily chart we are seeing the MACD close to breaking below the signal line, while the stochastic has made a higher low and looks set to trade back below the 80 level. We should see both of these materialise this week, and I will look at tactical short positions.

Good support is seen at the uptrend drawn from the December 31 low at $1290, ahead of the 38.2% retracement of the December to February rally at $1283.

On the upside we have seen gold fail to have a sustained close above the 61.8% of the September to December sell-off at $1338 and this has been a reoccurring theme since the metal started making lower highs and lows from 2012. This seems quite significant to me.

Fundamentally the market could buy gold if sentiment towards the Chinese economy deteriorates or if we see an all-out escalation in Ukraine, with relationships between Russia and the West also turning increasingly sour.

The role of the USD will also play a big part for price action this week and there is a huge amount of US data. The US payrolls report will be the key focus and the market will be keen to see if we see a third month in a row of weather affected employment data. The market is underweight the USD at the moment, so a number above 150,000 (Bloomberg consensus), should push up bond yields and the USD and subsequently we should see gold fall.

As things stand gold has a negative 54% 30-day correlation with the USD, which is fairly elevated against historical standards, so you can see the USD is key to gold right now.

Keep an eye on EUR/USD, which is testing the long-term downtrend at 1.3830; a break above here would push gold higher.

Spot gold
IG Charts

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