Weak Euro Keeps Gold Afloat

Aibek Burabayev - INO.com Contributor - Metals

One of our readers asked if I would do a Gold/EUR analysis when I posted my last Gold/$ update. Today I will cover this instrument and show its comparative dynamics for a broader view from the opposite side of the Atlantic.

Chart 1. 5-year Comparative Dynamics: Gold/Dollar Vs. Gold/Euro

5-year Comparative Dynamics: Gold/Dollar Vs. Gold/Euro
Chart courtesy of tradingview.com

As seen on the chart above, both Gold crosses have a very strong correlation over the past 5 years. Same peaks and troughs, US gold slightly overshot the European gold at all-time high in 2011; however, it proved to be short-lived.

At the end of 2014, we can see the sharp divergence of crosses (highlighted in red arrow) amid a deep devaluation of the EUR which caused a rocketing of Gold/EUR beyond the 1100 EUR mark. The elevation was short and in 2015, we saw a sharp drop back down in both markets.

There are two things worth mentioning:

1: The gap shaped on divergence is still in the place (highlighted in blue rectangle) mostly due to flat EURUSD dynamics recently.

2: The divergence helped European gold to keep above the 2013 low, US Gold couldn’t avoid a worse destiny and broke below that level.

European buyers are slightly above the break-even point for the past 5 years with a +1.6%. Which is not true for US holders, Gold in US dollars lost painful 5th part of the value for the same period.

Now let’s move further to Gold/EUR itself.

Chart 2. Gold/Euro Weekly: At The Crossroads

Gold/Euro Weekly
Chart courtesy of tradingview.com

The spike in 2015 didn’t have follow-through buying and Gold has fallen to the original level below the 1000 EUR mark. And it looks like we will have a wider and longer correction ahead. The first part of it was accomplished in 2013 when the price dropped to 858 EUR, almost 50 EUR above the 50% Fibonacci retracement zone.

Downside scenario

I highlighted the first down move from the peak in 2011 to the low in 2013 in a red AB segment. The red CD segment starts from the 2015 peak at 1168 EUR and has two possible downside targets:

1: The area where the red CD segment is equal in length to the red AB segment at the 640 EUR mark with a possible 36% gain (highlighted in the red dashed horizontal segment), this level is very close to a very important 61.8% Fibonacci retracement zone.

2: The level where the red CD segment is shorter than the red AB segment and equals to 0.618 of it at 839 EUR with a possible 17% profit (highlighted in green dashed horizontal segment), it's between two good support levels: the first is the B point level at 858 EUR (highlighted in the blue dashed horizontal segment) and the second is the 50% Fibonacci retracement at 812 EUR.

Below the 910 EUR level (intermediate low) the bearish scenario would get more chances.

Upside scenario

I can’t rule out a more complex corrective move and that’s why I added the grey dashed arrows to the chart. The grey CD segment is equal to the grey AB segment (not highlighted) and targets at the 1272 EUR level. That is more than a 25% gain to the current level. But after all, the target is still below the all-time high and could just be a temporary peak inside of the complex correction amid the same trendless market in

The first resistance to breach the upside is located at the 1070 EUR mark (intermediate high).


Despite that I wrote two opposite scenarios, the main idea is that the global outlook shows no clear trend and the price has been set to fluctuate within the 857-1385 EUR large corrective range. Of course, short term players can benefit from either side with sound risk management as targets are far enough apart from each other.

Intelligent trades!

Aibek Burabayev
INO.com Contributor, Metals

Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

6 thoughts on “Weak Euro Keeps Gold Afloat

  1. In what economic scenario does the Euro get stronger? The EU has a lot of problems... it seems to me the upside is more likely.

    1. Dear Lord Koos,
      Thank you for sharing your view!
      Euro couldn't break below last year's low (1.0462) and currently is above this year's low (1.0710). It raises chances of more complex corrective move, which can push it up to 1.1250-1.1580-1.1760.
      1.1250 = December 2015 low/high projected up from January 2015 low.
      1.1580 = 1.618 x (above measurement)
      1.1760 = 2015 low/high projected up from December 2015 low
      Best regards, Aibek

  2. Hi 857 to 1385 is 500 points that's a big spread I thank the down side is more likely, first. the government's put the world in a spiral with free money and no interest baring interments in which we can have a hock to hang our wealth on to keep it from disappearing . well guess what with O interest out there and peoples money in funds pockets the only way out with out starting over is spiral deflation .. lower gold and everything else that's valued as wealth. were in a tuff fix and no one knows how to get us out of it, Its been this was for the last 10 years. Oh may be they will erase everything and start over. that's what they will do, eventually. that's the ticket, for the underlings.

    1. Dear Carl,
      Thank you for sharing your view with all of us here.
      Yes the range is quite wide as I told in my post. The reason for this is even larger range of EURUSD (1400 pips) which is still in the 1.04-1.18 range, Gold is less volatile and impacts less to the cross.
      I guess EUR is going to touch higher levels and that's coincides with your view of lower Gold/EUR and also matches with primary scenario highlighted in the chart.
      I think we are about to witness the change of paradigm. Things will change for sure but people not! Nothing is new under the sun.
      Best regards, Aibek

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