Commodity Spotlight - Gold

The fear of inflation has driven money into the ten year yield which in turn has given strength to the dollar, historically gold has always been a hedge against inflation, so mid to long term gold should benefit from these fears. To quote Warren Buffet “be greedy when others are fearful” and there certainly has been a lot of fear mongering this week and whilst there are risks to the downside, I believe we are in an area of strong support and that sets us up for a very favourable risk to reward ratio of at least 1:10 with our target of 2400 in the mid term.

We are now in oversold territory on the daily RSI, the last time that happened we bounced from the lows of 1765 rallying to 1950 over the course of 5 weeks. I am expecting a bounce with 1700 as huge support, being a pre covid high for gold and the 38.2% Fibonacci retracement at 1725 taken from the rally that started from the 2018 lows of 1160. We did come back to close above the 38.2% fib on Friday so this is a good sign.

As always manage your risk with sensible position sizing, if our analysis holds true and gold either stabilises or bounces this week without closing below the aforementioned support levels then I would start adding small positions in gold at this level.