Amid the whole banking turmoil, gold benefited on two fronts as traders piled into traditional safety bets and also the fact that the whole saga raised doubts about the appetite for central banks to hike rates further in the tightening cycle.
That saw gold bulls rally hard but ultimately, the jump failed to firmly get above the $2,000 mark and that is quite a psychological blow to the upside momentum.
Gold is now down over 1% on the day to around $1,954 and is now testing its 200-hour moving average, seen at around $1,954.44 on the hourly chart. A firm push below that will see buyers lose their stranglehold as sellers recover back the near-term momentum instead.
As broader market sentiment recovers and the banking turmoil eases, I fear that we could see gold get squeezed quite hard back to the downside. That especially if markets become convinced that this won’t be the end of the tightening cycle for the two big guns i.e. Fed and ECB.
Just take a look at this:
That’s a big jump in bullish bets on gold after having identified with the two catalysts mentioned above. I mean, that’s something that will whet the appetite of many who are looking to shake out some weak hands.
Sure, the bigger picture outlook looks to be favouring gold more as we come closer towards the end of the tightening cycle for the Fed and ECB. However, that doesn’t mean that price action will move in a straight line and follow the fundamentals directly.
Positioning play is also a key factor to consider and the above – at least to me – says that there is the potential for gold to get squeezed hard on any downside press before finding some stability to rally higher, and back above $2,000, in the longer run.