Gold shines bright amid the US Dollar and crypto selloff

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The US Dollar has been moving lower since making a high on September 28th at 114.78.  However, the selloff picked up steam on Friday as speculation made the rounds that China was going to reduce, or even end,  its zero-covid policy that it has maintained since the beginning of the pandemic in March 2020.  China formally denied an end to the zero-covid policy; however, markets were still hopeful, as China did make some reductions to quarantining people who enter the country.   On Friday, the DXY made a daily high of 112.99.  However, by the end of business on Tuesday, the US Dollar Index had made a low print of 109.37, testing the lows of September 20th.

Source: Tradingview, Stone X

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In addition, on Tuesday there was turmoil in the crypto markets as crypto exchange FTX ran into liquidity issues and was eventually purchased by rival Binance.  Crypto currencies such as Bitcoin and Ethereum sold off aggressively, with Bitcoin reaching its lowest levels of 2022. 

Source: Tradingview, Stone X

As a result of the crypto selloff, many traders feared contagion may affect other markets, such as stocks.  

The beneficiary of the US Dollar selloff on Friday and the crypto selloff on Tuesday was Gold, as traders parked funds in the safe-haven asset.  Gold had been moving lower in an orderly channel since March, after testing the all-time highs of 2075.11 in August 2020.  The precious metal pulled back to the 50% retracement level from the lows of August 2018 to the highs of August 2020 near 1617.68.  Gold tried to break the support level three separate times since September 28th, failing each time.  The last time price tested that level was Thursday November 3rd, the day before the US Dollar meltdown occurred.  Gold is currently up nearly 100 Dollars since then and is testing the 100 Day Moving Average at 1716.21.  

Source: Tradingview, Stone X

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The 100 Day Moving Average confluences with the 50% retracement from the highs of August 10th to the lows of November 3rd near 1712.31.  The next level of resistance is at the 61.8% Fibonacci retracement level from the same timeframe and horizontal resistance near 1735.  Above there, Gold can move to 1807.91, the highs of August 25th.  However, notice that the RSI in the bottom is in overbought territory and pointing lower.  This is an indication that price may have risen too much over a short amount of time and may be ready for a correction.  First support is at Monday’s highs of 1682.13.  Below there, price can fall to the lows of November 3rd at 1616.71, then the top downward sloping trendline of the recent channel near 1590.

Source: Tradingview, Stone X

Will Gold continue to move higher?  It may depend on the selloff in the US Dollar.  US CPI is due on Thursday.  If it is higher than expected, the USD may go bid and gold could sell off (and vice a vera).  In addition, if we are seeing the demise of cryptocurrencies, traders will be looking for the safe haven of Gold, which will continue to push the precious metal higher.