Gold jumps on safe haven demand and as dollar, stocks fall
London (Sept 23) Risk is off the menu today with stocks plunging and the safe haven yen and gold rising. It is not clear what exactly has caused this latest rise in risk aversion. After all, the conflicts in the Middle East had been on-going but ignored by the financial markets for months now and so the bombing of Syria by the US and its Arab allies is unlikely to be the sole reason boosting demand for safe haven assets. For stocks, there have been numerous individual company or sector news that has helped to add to the selling pressure. In London, for example, Barclays, Tesco, Tate and Lyle have all suffered in this regard, while drug makers are down after the US government's tax inversions plans that were announced last night have made them appear less attractive takeover targets. Meanwhile the dollar is also weaker following recent gains. It looks like it is the lack of any major US data today and also yesterday’s release of disappointing existing homes sales data that are both helping to encourage some profit-taking.
So, with stocks and dollar both lower today it has been a perfect opportunity for the gold bears to book profit and the bulls to take advantage of the weaker prices to establish some long positions. The yellow metal has bounced off the $1210/12 Fibonacci-based support area and is now testing the next hurdle around $1227, which is a support-turned-resistance level. If the bulls manage to push price beyond this area then that could pave the way for a potential move towards $1240 in the short-term (area circled on the chart). The $1240 mark is a more profound level of resistance and so a potential break above it could give rise to follow-up technical buying. Meanwhile the RSI has started to climb above the oversold threshold of 30, suggesting the momentum is shifting into the bulls’ favour. However, for as long at the RSI is below the key 60 level, this would indicate that gold is in an overall downward trend. Indeed, the metal has been making lower lows and lower highs recently, and so this latest bounce could just be a correction. Nevertheless, the technics appear more constructive today and we could see some healthy gains in the very near-term. Silver meanwhile has also bounced back from a key Fibonacci support level, as we pointed out yesterday.