With the dollar strengthening gold has been dragged bac. However, we see this as a near term unwind within a bigger medium term positive outlook and will serve to be a chance to buy. How the market reacts in the support band around $1902/$1926 will be key now.
A dollar rally is dragging on gold. The concern for the gold bulls will be just how far a dollar rebound can go and whether it significantly damages the technical outlook on gold in the process.
We believe that the negative correlation between the dollar and gold is still a key factor. The 21 day Correlation calculation unwound in late August as markets consolidated, however remains negative. Now in the past week, we have seen the moves on gold and the dollar re-emerging with a negative relationship. Once more today, the dollar is higher and gold lower.
The dollar rebound could though have further to go, with key resistance from August between 93.50/94.00 (equates to $1.1700/$1.1750 support on EUR/USD). This could further weigh on gold, meaning a test of the $1902 support should not be ruled out. As we have discussed in the technicals recently and today, this would have an impact on the medium term technical outlook that the bulls would then need to work hard to re-establish.
On a near term basis, tomorrow’s Non-farm Payrolls will play a factor into volatility on gold and need to be watched.
However, despite all this, we would still see weakness on gold as a longer term opportunity. The Federal Reserve has laid out plans for further dovish monetary policy since Fed chair Powell’s Jackson Hole speech. The dollar is gaining near term from weakening of the euro, however, we see any strength for the dollar as short lived. Therefore, with the ongoing negative correlation relationship, any weakness on gold will likely be short lived.
The long term outlook for gold has been strengthened from Fed chair Powell’s Jackson Hole speech which we see will help to underpin gold in the months and likely quarters to come. Continued looser for longer global monetary policy will keep real yields subdued/negative and should mean that gold remains attractive. Subsequently, this is still a good environment to be buying gold into supported weakness.
- $1927 – intraday low 3rd September (23.6% Fib at $1926)
- $1911 – 27th August low
- $1902 – 26th August low
- $1950 – 3rd September intraday high
- $1955 – near term pivot
- $1973 – 2nd September high
The dollar strengthening of recent sessions has weighed across major asset classes and gold has also been impacted. Pulling back from $1992, gold has now slipped back into the important support area between $1902/$1955. Primarily of importance, we see the support of the 12 week uptrend at $1928 today. This is a trend which has been an excellent gauge of support for near term corrections in recent weeks. Furthermore, we see the 23.6% Fibonacci retracement (of $1451/$2072) at $1926 which has been a strong basis of support for closing levels since mid-August. We look for the support to now begin to form around these levels and to be seen as another chance to buy. However, this is becoming a key test of resolve for the bulls.
Hourly chart indicators show a growing sense of corrective momentum which needs to be halted. Hourly RSI needs to begin to pick up above 50 and hourly MACD lines above neutral. Failure to do so will see the continuation of intraday rallies being sold into. Resistance is now $1950/$1955 which needs to be broken for the bulls to begin to regain control. A close below the 23.6% Fib (at $1926) would be big warning, whilst a close under $1902 would be a decisive corrective signal now.
STRATEGY: Gold has taken a near term hit as the dollar has staged a rebound in the past few sessions. We still see this as near term and a chance to buy. On the basis of holding support around $1902/$1926, we look to buy for renewed upside in due course and a retest of $1991/$2015. Conviction is tested on a close below $1926 and lost below $1902. Under $1900 opens the $1853 low again.