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Yesterday’s durable goods orders dropped by 7.3% in July against an expectation of 4%, which has not helped risk sentiment. Given that the number increased by 3.9% the previous month, it appears that the manufacturing sector may not recover as quickly as was initially hoped. This also tends to add fuel to the notion that US economic growth for the third quarter will not match the pace of Q2. Capital has therefore drifted to assets that are perceived as safer, such as bonds, yen and that traditional safe haven, gold. The threat of war and the ever-present US Federal Reserve taper mean that investors lack clarity.
The push through the $1350 resistance level has been the key to the current rise in gold prices. The fall from $1793 to $1180 per ounce between October and June amounted to a 34% decline for the shiny metal, and the ensuing bounce of 20% has brought us back to bull territory. Current levels of $1415 are testing the 38.2% Fibonacci retracement, and a daily close above this would embolden the bullish scenario and invite further gains. The 200-day moving average lies just above the $1500/oz level, but the $1487 juncture will need to be overcome before the market returns to this mean level.
Technically, a fall back through $1350 could undo all progress. Given how resistant that level was it should now prove to be supportive; a break and close below it would most likely negate much of the bullishness and ultimately amount to a false breakout. For now, the short-term charts and the daily RSI are registering that gold is marginally overbought. On the weekly chart, however, this is not the case, with the RSI currently pointing to 55.
The only certainty at the moment is uncertainty; a scenario that can ultimately be interpreted as positive for safe-haven assets.