Gold is increasingly forming an uncertain outlook near term as the rally has stuttered. We continue to hold a bullish medium to longer term outlook, and see weakness as a chance to buy. For now, though we are increasingly cautious of the latest bull run.
Even though the dollar is coming under corrective pressure in recent sessions, it is interesting to see that gold is not responding to this. There are a lot of moving parts to drive the fundamentals on gold and for now it looks as though the negative correlation with the dollar is just stepping off. The correlation remains strongly negative but notice the tick higher.
It would seem that the consolidation on Treasury yields (another negative correlation with gold) is beginning to be more of a factor. This is playing into the loss of momentum of the bull recovery on gold. Throughout this week, the correlation has begun to reassert once more.
However, we continue to hold a strong medium to long term view for gold. The ultra-dovish standpoints for major central banks who are engaging in massive balance sheet expansion once more is gold supportive. Also real yields are likely to remain negative for some time, which reduced the opportunity cost of holding gold. In the months ahead, this all leaves gold well placed to perform strongly.
- $1611 – intraday low 27th March and old key breakout
- $1592 – 26th March low
- $1585 – 25th March low (and 24th March intraday low / pivot)
- $1642 – 26th March high, also 23.6% Fibonacci retracement of $1445/$1702
- $1670 – 11th March high
- $1702 – 9th March high
The last few sessions have seen the bull move higher on gold hitting a period of consolidation. As the dollar has weakened this has resulted in a variety of markets pulling strong rallies, but gold has just begun to lag other moves. The candles have become far less decisive, lacking conviction with small real bodies and longer shadows. We have been considering the prospect of a corrective move developing on gold, but the bulls seem happy to support the market even as the run higher has just hit the buffers. Although the daily chart shows a dip back lower early today, the move once more seems to be well supported. Consolidation is beginning to weigh on the daily momentum too, with the Stochastics losing their impetus and RSI tailing off in its advance. There is still a positive bias to gold, with yesterday’s bull candle certainly helping this, but it was interesting to see the 76.4% Fibonacci retracement (of the original $1445/$1702 rally) around $1642 being the basis of resistance. The hourly chart shows a mini trading range now $1585/$1642 whilst momentum indicators settle into far more of a consolidation configuration (with a mild positive bias). Closing above $1642 re-opens the $1702 key high, whilst below $1585 is a correction and would likely provide the next medium term buying opportunity. We remain positive on gold medium to longer term, but an uncertain near term outlook has developed.