Gold breaks out, S&P 500 tests 100 DMA

Risk aversion in markets continues with haven flows helping gold break out of its trading range, while the S&P 500 index tests an area of technical support that’s been in play since the 2020 lows. 

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• Gold breaks out above range resistance at $1830 per oz.
• Nasdaq closes down over 10% from high
• S&P 500 triggers Bloomberg-reported technical dip-buying signal
• Sterling takes a licking from Operation Big Dog

Asian markets look set to snap a losing streak on Thursday after Chinese authorities cut a benchmark mortgage rate but sentiment remains fragile. European markets look set for a higher open, adding to small gains made on Wednesday, faring better than Wall Street where the Nasdaq index closed lower and entered a technical correction (down 10% from its high).

The US 10-year yield hit 1.9% earlier on Wednesday, its highest level since December 2019. That’s a substantial gain from where it started the year around 1.5% - and continues to cause anxiety across markets.

Gold

As risk appetite deteriorated on Wednesday, gold was the standout winner. The yellow metal broke back above $1830 per oz for only the second time since July. The first time around it proved to be a false breakout and there could be a repeat this time – but - having held support at 1760 after that occasion, gold could be in a stronger position to sustain a breakout. Naturally, silver is doing even better as investor preference for precious metals returns – XAG/USD broke above 24.0 for the first time since November.

S&P 500: Buy the 100DMA dip? 

The S&P 500 dropped to fresh YTD lows as investors sold into an early bounce to send the benchmark US index lower. The decline takes the index below the 100-day moving average, which has acted as key support since the rally off the March 2020 low. According to Bloomberg, the price has closed below the 100 DMA 8 times, and after having done so, has not seen a drawdown of more than 0.2% before heading higher again. If this ‘buy-the-dip’ strategy doesn’t work this time, it could be taken as a signal that a bigger decline is coming.

Operation Save Big Dog

The British pound got chewed up on Wednesday as traders sold the news of a 3-decade high UK inflation print amid the ongoing political uncertainty. ‘Operation Save Big Dog’, a reported plan devised by the Prime Minister to draw up a list of other ministers to resign to save himself came under ridicule in Wednesday’s PMQs. 

The economically-significant news that masks and work-from-home restrictions have been dropped in the UK was lost in the wash. Cutting through the noise, the threshold of 54 (15% of) Tory MPs writing a letter of no confidence has not been met before the ‘partygate report’ is released. For GBP bears, GBP/JPY looks vulnerable having double-topped at 158.

Bank earnings

On the earnings front, there was better news from the big US banks after Bank of America topped estimates – boosted by its asset management business and the release of $851 in loan loss reserves that it set aside at the start of the pandemic. Today investor attention will turn to the first of the big tech stocks – Netflix – to assess whether the recent tech stock sell-off has been justified or if it's overdone. You can read our report previewing Netflix earnings here.