Gold is attempting to form a near-term base, with technical signals on the daily chart turning increasingly constructive. However, options traders remain cautious, with demand for downside protection rising and implied volatility beginning to lift from recent lows. The next move may hinge on whether markets continue to price in hopes of a peace deal between the US and Iran.
View related analysis:
- ASX 200 Outlook: SPI Futures Rise, But Resistance Looms Over Rally
- Nasdaq 100 Rally Pauses, Dow Jones Looks Vulnerable to Wall Street Bears
- FX Futures Positioning: Dollar Rebound Stalls as Yen Bears Return | COT Report
- Crude Oil Outlook: Brent Teases Bears at Elevated Prices
Gold Bulls Eye Swing Low as US-Iran Peace Hopes Weigh on the Dollar
The latest hopes of a peace deal between the US and Iran weighed on the US dollar on Thursday, helping gold carve out what could become a swing low. But how many times can markets watch the same story unfold and expect a different ending? Ultimately, any meaningful breakthrough requires official and public agreement from the US, Iran and Israel—a hurdle that still appears some way off.
That said, optimism surrounding a potential peace deal could continue to support gold while those expectations remain intact. The obvious risk is that this proves to be yet another false alarm, triggering a reversal lower. With Friday marking the final trading day of the month, price action could also become increasingly fickle as positions are adjusted.
Still, if markets continue to price in a resolution—or, somehow, one actually materialises—the technical signals on gold's daily chart are difficult to ignore. The recent price action has the makings of a textbook swing low. Whether gold can extend its rebound from here may ultimately depend on the progress of negotiations.
Gold Futures (GC) Technical Analysis
The daily gold futures chart shows a false downside break of both the 200-day SMA and 200-day EMA. These are significant levels that are often difficult to crack, and the daily close back above them is constructive for bulls over the near term. Also note the false break beneath the March low. Prices have since reclaimed the monthly pivot point, while a bullish divergence is forming on RSI (2), further supporting the case for a near-term rebound.
The 1-hour chart shows that the strong rebound was accompanied by elevated volumes, suggesting bulls drove prices higher rather than the move being merely a short-covering exercise. However, resistance emerged at a weekly VPOC (volume point of control), and prices are retreating during early Asian trade.
Source: COMEX, CME, TradingView
Gold Options Market Signals Caution Despite Bullish Price Action
Options traders appear less convinced by gold's recent rebound, with signs of increased demand for downside protection in the options market.
Despite the bullish hammer formed on the daily chart, the 1-week 10-delta risk reversal—a proxy for tail risk—fell to a four-week low, signalling increased demand for puts relative to calls. Similar shifts were also evident among institutional traders across longer-dated maturities.
Perhaps the rise in put demand reflects portfolio managers taking a more defensive stance into month-end, when price action can often become fickle. However, the fact that this trend is evident across all major gold risk reversals suggests there may be more at play than simple month-end positioning flows.
It is also worth noting that implied volatility for one-week and one-month spot gold options has started to curl higher from relatively subdued levels. Given volatility tends to be cyclical, the recent uptick may be an early sign that traders are preparing for a larger move in either direction.
Source: COMEX, CME, LSEG
View the full economic calendar
-- Written by Matt Simpson
Follow Matt on Twitter @cLeverEdge
How to trade with City Index
You can trade with City Index by following these four easy steps:
- Open an account, or log in if you’re already a customer
• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
- Search for the market you want to trade in our award-winning platform
- Choose your position and size, and your stop and limit levels
- Place the trade
