It’s getting harder to ignore a potential technical breakout in gold

Gold is still keeping above $1,600 despite the more modest risk mood today


Let’s split this into two separate discussions. Firstly, from a technical perspective, gold is knocking on the door of something big potentially.

Price is keeping above $1,600 after the move higher yesterday and is closing in on the year’s highs at $1,611.42 with further resistance seen around $1,616.72.

Notably, buyers are looking to keep a firm break above $1,600 as well as the 61.8 retracement level near $1,587 – something which they have struggled with in recent weeks.

In that sense, once these hurdles are cleared, it could be quite the breakout in gold – at least from a technical point of view.

Now, let’s look over to the fundamental perspective for gold. The coronavirus outbreak is the obvious talking point and so far fears have been ebbing and flowing, but recently there is some encouragement that things may get better – according to Chinese data at least.

Despite that, gold is still actually holding up quite well and the fact is, we are seeing plenty of action from central banks and governments i.e. stimulus measures in order to try and bolster their respective economies.

In an environment where the world is competing for easing policies and negative yielding debt is piling up due to the lower yields landscape, gold continues to be a favoured commodity in the long-run so long as this keeps up.

That is not to say that gold may not retrace lower first but as the focus after the coronavirus outbreak turns back towards major central banks likely needing to ease further to sustain economic activity, gold will always be able to count on that for support.

For now, the technical breakout isn’t quite solidified just yet but just be wary of February flash PMI data from the euro area, UK and US on Friday. If the readings show a more severe impact from the virus outbreak, it could yet trigger a bout of risk aversion ahead of the weekend. And that will work in gold’s favour towards achieving a potential breakout.