After recent volatility, the market is settling down ahead of payrolls. Whilst we cannot rule out further volatility, we see near term weakness as a chance to buy for a continued medium-term positive outlook.
We continue to see the succession of major central banks panicking to ease monetary policy and this will be supportive for gold over the medium term. Negative real yields are supportive for gold. Whilst Coronavirus continues to spread around the world, there is a safe haven attraction for gold.
There could be a near term consolidation on gold in the next day or so as traders look towards Non-farm Payrolls, which is Friday at 1330GMT.
The one main caveat for gold moving higher during these times of high volatility is the condition of a plummet on Wall Street equities leading to margin calls and another corrective move similar to last Friday’s sharp sell-off on gold. In a more orderly market, we see gold being supported by what is likely to be increasingly dovish coordinated central bank moves.
- $1631 – 23.6% Fibonacci retracement of $1445/$1688, also 4th March low
- $1625 – old 26th February low ($1626 was the intraday low 3rd March)
- $1611 – 8th January high, old key breakout, also 2nd March high
- $1651 – 4th March intraday high
- $1660 – 27th February high
- $1688 – major, multi-year high, 24th February high
The sharp rebound on gold was met with a bout of consolidation yesterday as the market took pause for breath. Spending the session, fluctuating between gains and losses, a small negative candle has just curbed some of the bullish intent for now. We discussed yesterday how the 23.6% Fibonacci retracement was being used as a basis of support (around $1631) prior to the sharp sell-off last Friday. We note with interest how once more, this is being used as a basis of support. Given how volatile markets have been recently, it is difficult to say with high conviction that gold will certainly be moving higher, but we believe the medium term positive outlook for gold remains intact on the technicals (as it does on fundamentals) and as such we see weakness as a chance to buy. The eleven week uptrend is supportive at $1592 today (around the 38.2% Fib at $1595). Momentum indicators are ticking positively once more, within their positive medium term configuration. The resistance to overcome to engage high conviction in the move higher again comes in at $1651/$1660. Another higher low above the old $1611 breakout would be positive.