Gold Update: Major Reversal

Gold Has Already Started Its Hunt For Stocks

Chart 1: Gold/S&P500 Ratio Daily

Chart courtesy of TradingView.com

Two weeks ago in my special post about the Gold and stocks correlation, I was talking about the coming end of the Gold/S&P500 ratio collapse and I was really surprised by this immediate outcome shown in the chart above. My congratulations to those who luckily bought Gold and shorted the stock index, now you can enjoy a decent 17% gain on the trade and this just may be the beginning.

The ratio literally exploded out of a downtrend above the 0.56 level and the reason behind this is the simultaneous opposite move of the ratio components: The S&P 500 crashed for more than 8% amid the robust 4% rise of Gold.

The target for the ratio was set at the 2.00 level, it has another 1.4 units to go, 0.1 units have already passed and as a wise man once said, "А journey of a thousand miles begins with a single step."

Gold Monthly: 50% Fibonacci Support Has Survived So Far

Chart 2: Gold Monthly

Chart courtesy of TradingView.com

When I was posting my last Gold market update, there were two scenarios given for a downward move. And the first one with a downside target at the 50% Fibonacci retracement level of $1086 was fulfilled. Indeed the price fell below the support level of $1073, but the July monthly candle closed above the hurdle at $1095 and so has the August candle so far with an open price also above the 50% Fibonacci level.

This month has almost reached the height of the previous black bearish candle ($1168 August high vs. $1175 July peak) erasing gains of fearful collapse in the previous month and this is the worrisome signal for sellers: If August closes beyond the $1175 level, it will ultimately change the game in favor of buyers.

This time I added the RSI indicator below the chart to draw your attention to one important behavior. All the way up from the $252 low to the $1920 high this indicator was above the 50 level and only once it was a false break below when a $700-$1000 round trip happened in 2008. At the moment, we are below the waterline and Gold needs to cross over it for sustainable growth. On the price chart, it will need to take off the first hurdle at the previous high at $1308 for further advance.

Downside risk is now below the new low at $1073, if price cracks it, the next is $900 with interim support at the $1000-1030 area, however amid the Asian stock market crash it is a less likely scenario.

Intelligent trades!

Aibek Burabayev
INO.com Contributor, Metals

Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.