Gold (XAU/USD) traded around $4,676 on April 3, up about 17% since it touched a low of $4,105 on March 23. The meeting seems satisfactory. However, correlation metrics, conversion rates, and a cursory reading of the latest Commitment of Traders report suggest that this trend may be building on a flawed foundation.
The strongest rallies in gold began long after the metal was removed from oil, not when they all moved together. The 17% jump is in the same trade that preceded any correction, and the controlled entry that breaks the link can be more encouraging than continuing.
Gold Is Rising But The Deal That Matters Has Started To Turn
Starting March 23, gold price has been rising ion the edge of an upward trend on the 8-hour chart. The formation is not a bear flag, because the trend continued for a long time, but it was not confirmed as strong until the upper limit was definitely broken.
XAU-WTI Correlation Matrix, BeInCrypto’s trend indicator that measures the 50-time correlation between spot gold (OANDA:XAUUSD) and WTI crude oil (TVC:USOIL), is currently reading -0.10. The reading is down from the positive level it was in March but appears to be on the rise again.
The model is interactive. In mid-October, the correlation dropped to -0.88. and remained negative until the beginning of November. This is when the price of gold started its strongest rally. This shows that Gold performs best when it completely removes oil, acting as an independent medium.
Every time the connection reached its peak, gold was prepared. In late January, the reading hit around 0.85, and gold fell in the following weeks. At the beginning of March, another interest rate related to the rise of $ 5,422 before starting to sell again.
A recent reading of -0.10 puts the correlation in a reversal. The 17% rally since March 23rd occurred during the transition period, which means it was driven in part by the same sentiment about oil rather than by a desire for safety.
This is why controlled immersion can be beneficial. If the price of gold pulls back as oil continues to rise, the correlation will rise to the -0.70 zone, where gold has started each independent assembly this cycle.
This meeting should not continue to be golden. The contract must complete the renovation. Options traders are already reacting to the breakout, and their position is showing whether the move has real faith.
Bullish bets have replaced Bearish ones but the Basis is Stable
The SPDR Gold Shares ETF (GLD) index reflects the position of traders who choose to invest in gold. On March 26, the number of call volumes stood at 1.35, which means that the placement is greater than the sales calls. Bearish sentiment was dominant. The open interest rate at that time was 0.53.
By April 2nd, the volume ratio had dropped to 0.70 as calls intensified and weakened. The open interest rate rose to 0.56, indicating that new positions are opening. The bearish bets that preceded the March sell-off have been replaced by a new outlook.
Traders may have responded to a 17% explosion in the cycle from defensive moves to direct moves. When bullish bets are made at the same time as oil prices rise (in the current zone), newly opened positions become vulnerable.
The Commitment of Traders (COT) report, published weekly by the Commodity Futures Trading Commission (CFTC), recommends this reading. The March 24 report, the most recent, shows that non-traded (estimated) positions increased by 4,900 contracts to 220,861. Short positions fell by 3,558 to 52,534. In fact, this looks beautiful.
However, total interest is down by 7,463 contracts to 403,925 from the previous report on March 17. If there is more, but overall interest is down, it means that the rally is being driven by short covering rather than fresh buying.
The change between the two reports is consistent with what the GLD calls the data showing. Bearish participants were caught by 17% in the meeting and insisted on repositioning. This may continue for a while but historically it does not provide a basis for a stable gold price. Price levels are now showing the next direction for gold.
The Price of Gold and Related Disruptions
An 8-hour chart with Fibonacci levels forms every important gold level. Gold is currently at $4,676 within an uptrend.
For the rally to expand, gold needs to close for 8 hours above $4,802. Above, $5,043 acts as the next major resistance. A move to $5,043 would bring $5,422, the March 1 high, back into perspective.
However, if gold reaches $5,043 or more before the synchronization completes its reset in the negative phase, the session may repeat the same process that led to the initial reset. A move up where the correlation is neutral instead of settling below -0.70 would leave the front on an incomplete base.
Below that, $4,490 at 0.236 Fib represents the first support. Below, $4,297 at the 0.382 Fib and $4,141 at the 0.5 level are entered. The low of $4,105 since March 23 is closely related to the 0.5 zone and represents the base of the rally of 17%.
This is where the paradox ends. A drop in gold prices to $4,105 as oil continues to rise could push the contract back into negative territory.
A dip that breaks the oil contract creates a solid foundation for the next bullish move, while the ongoing rally that keeps things moving together leaves gold in the hot spot that triggered any correction. An 8-hour close above $4,802 extends the rally but keeps the link risk alive, while a pullback to $4,105 that breaks the oil link could be a surprise for gold’s long-term path.
A note Why Gold’s Price Dip Could Be Stronger Than Its Current 17% Rally appeared for the first time BeInCrypto.
