Gold closes back above $1700, but is it sustainable?

Without a question gold prices resulted in solid gains today. As of 5:03 PM EST gold futures basis the most active August contract is currently fixed at $1705.30, which is a daily increase of $22.30, or a total of 1.33%. That being said gold did close just under two key technical levels. First the current 50-day moving average which for gold is fixed at $1709.10. At that same price point ($1709.30) there is the 23% Fibonacci retracement. This retracement data set begins at $1451 and concludes at $1788.

While gold prices did not have the ability to trade and close above $1709, today’s $22 gain is absolutely respectable and significant. It is significant in that prices were able to rise just below key levels of resistance, and even minor follow-through buying tomorrow would take current pricing above those key levels. Also interesting is the fact that with all the upside potential and strength gold had in trading today it was not able to overtake that former support level that now looks like it might become resistance (see chart 1).

The market sentiment that was present and powerful enough to take gold pricing higher was based upon assumptions that although the global pandemic certainly seems to be running its course the global economic recovery has not even begun, might I add even continue to allocate more and more capital to help aid citizens affected worldwide, as the cost of this pandemic continues to balloon. Over the last 3 ½ months the Federal Reserve in combination with the U.S. Treasury Department has allocated and spent close to $6 trillion the largest expenditure by U.S. government agencies in history.

However, many analysts and economists believe that additional stimulus is not only possible but necessary to have the desired effect on global economies which have been devastated.

Traders market participants will await the release by the Federal Reserve of an updated policy statement which was created at the conclusion of last week’s two-day meeting.

While there is real tangible data to support the assumption that there has been a slow but methodical economic recovery globally, we are in uncharted territory with completely unknown expenditures due to additional aid packages that will continue to create immense volatility within the financial markets as a whole.

Nonetheless this was a solid performance today in terms of gold pricing. The next few days could definitely determine whether this is the onset of a key reversal and pivot from bearish to bullish trend in gold, or simply a false breakout.

Wishing you as always good trading and good health,