During August gold rallied nearly $100/oz before pulling back late in the month and retracing roughly 50% of the rally. Gold now finds itself in an interesting situation oscillating in the $1130s/$1140s as global equity markets experience a bout of unease as questions concerning China continue to grow.
The technical situation in gold is fairly straightforward:
- $1125-$1130 is important support and the bullish impulse which began in early August remains intact above this level
- Above $1150 gold should see a quick move to the ~$1180 area for a test of previous support and the flat 200-day moving average
The amount of uncertainty emanating from the world’s 2nd largest economy continues to mount and there is a very good probability there will be a lot more government/central bank intervention before this ‘crisis’ is over. Gold stands to benefit from the China malaise in two ways:
- As a safe-haven asset
- As a currency alternative while China devalues its currency and other Asian countries experience substantial currency volatility
An extremely bullish backdrop for gold is unfolding as the yellow metal remains very much out of favor with the vast majority of investors. With the China cockroaches just beginning to come out of the closet I foresee a scenario in which gold rises $100/oz in a single day as investors rush to safety in a suddenly very unsafe global financial market environment.