The commodity did a “fakeout” over the fib mentioned earlier this week at 1642, then took a rapid nosedive, tested the waters at the next fib at 1590, and held. So far so good.
But the interesting part is that for the first time in a few days gold trends inversely to risk assets like stocks, euro, etc. This is the “normal” case for the last few months, and got effectively broken when the new margin requirements came into force, but the relationship seems to have been established over a few hours. The importance of this is that there is a “safe haven” asset to return to, and it could bring some more normal order flow into the markets and effectively bet on volatility while essentially shorting everything in sight. Because this relationship was broken this week, assets have traded rather mysteriously on the smaller time frames (positive euro-yen correlation when each is compared to the dollar on the minute frame. Worse yet, the same correlation was often negative over the hour frame[!]).
Either it foreshadows nothing, it’s just a blip and markets will go back to being coordinatedly confused; or it could be the “backstop” that allows some rather more firm moves either way to be made. Make note that we have been trading within pretty defined ranges given the average daily moves, and this could change rather rapidly if gold can run “normally” again against risk assets.
Another quick note: watch the HSI tomorrow. It could be rather interesting given the typhoon close, and the against-trend falls of the Chinese markets relative global peers. It will be a very good sentiment gauge to see whether bulls or bears will win tomorrow! Of particular interest is of course the way US markets trade for the next few hours, since they seem reluctant to clear new areas, even though data was good and Germany managed to skirt all problems and vote the EFSF package through smoothly.
There has been a rather significant sell-off in the range of 1% off the peak in the trading so far which is being recovered from slowly, it will be really important to see if the traders are willing to push this one higher despite minute-to-minute pips lost / pips gained being stacked clearly against them! To me, this does not smell like confidence, or even relief, but more like wariness and weariness: there is only so much you can sell off on a good day, so might as well park somewhere rather safe at the moment, and Dow at 11 200 – 11 100 might be a pretty good place to be, since it gives you reaction time either before breaking 11 000 again, or pushing against 11 550.