The prospect of open-ended Quantitative Easing from the Fed is encouraging the bulls back into the market again. We still see the pivot around $1702 as an increasingly key near term gauge and pulling higher away from it this morning is positive. With an uptrend taking hold the bulls will be looking towards the highs once more.
The FOMC meeting last night set the scene for US economic hardship for months to come. It also kept its policy options wide open, with a foot firmly on the gap of easy monetary policy told. There was no clarity as to when asset purchases might end, or for how long interest rates would be kept low.
On 23rd of March, the Fed increased its potential QE from $700bn to “the amounts needed”. There was no change to this. Also keep in mind that unemployment is expected to soar well beyond 15% in the coming months, in addition to the significant growth shock and the deflationary impact of a plummet to the oil price, the Fed’s mandated goals will not be even in sight for several months, quarters or even years. Ultra loose monetary policy is here to stay throughout 2020 and likely well into next year too.
The dramatic expansion of the Fed’s balance sheet in recent weeks (shown below in a chart by ING) is long term very supportive for gold. For the near term, the fact that the Fed has kept an exit from its loose monetary policy open-ended has expansion has encourage the gold bulls to just come back into the market once more.
It is interesting that we are seeing gold picking up once more, and performing better than all of the major currencies early today (even the Aussie).
We discussed the prospect that gold could be in the early stages of a less decisive near to medium term trend on gold. The reaction to the Fed is encouraging for the bulls and is helping to stabilise a recent drift lower. We still see weakness as a chance to buy gold. On a medium to long term basis, with real yields expected to remain low/negative and the massive easing of monetary policy, we expect gold to remain supported and to perform well.
- $1702 – near to medium term pivot a basis of support
- $1697 – 29th April low
- $1691 – near term pivot support, 28th April low
- $1728 – intraday high, 24th April
- $1738 – 16th and 23rd April highs
- $1746 – 14th April high
With the run of three negative candles on gold, we reviewed our near term positive outlook on gold. Taking a more cautious view, we have just taken a step back to see how this phase of trading develops. However, this morning we see the bulls just beginning to re-assert themselves again.
The pivot at $1702, the old March key high which has in recent weeks become a gauge for the near term outlook, remains an important technical signal. Despite the intraday breaches of this support in the past two sessions, gold is holding above the pivot into the close. This suggests that whilst caution may still be wise at this stage, the bulls are tentatively looking to regain control again. We feel happy to be cautious still (especially around the Fed meeting last night, but also today’s ECB decision), but the bulls are beginning to threaten once more. We have drawn in a tentative uptrend of the past four weeks, which is also a gauge of support now.
The hourly chart shows the market edging through a higher near term pivot at $1718 with increasingly positive configuration on hourly MACD and Stochastics. The market is also now beginning to consistently trade clear above the $1702 pivot once more and leaving the support of Tuesday’s low around $1691 behind. A decisive move above $1718 opens the resistance at $1738 before the recent high of $1746 can be considered.
STRATEGY: Holding on to the $1702 pivot support remains key. Trading above this consistently lends a positive bias and a preference for longs towards testing $1738/$1746 (which are highs of the $1660/$1746 range).