With the dollar breaking to new multi-month lows, gold is now breaking higher from its consolidation. With an ongoing strong technical outlook we back the breakout, and look to add to positions on intraday/near term weakness. Trading at multi-year highs, the all-time high of $1920 is the next real resistance.
We have been discussing a very strong negative correlation that has formed recently between the US dollar and gold. Gold has been consolidating in the past week and a half, but now with the Dollar breaking down to multi-month lows today, this is coming as gold is breaking to multi-year highs. The strong correlation continues. As such, we are watching near term moves on the dollar to play a role in how the gold breakout reacts. A technical rally on the dollar, could be a near term drag back on gold, but also likely be another opportunity for the bulls. We expect ongoing weakening of the dollar in H2 2020.
The move is not being matched entirely by Treasury yields currently. Although we have seen trends (lower on yields, higher on gold) being questioned recently, we have seen gold breaking higher. We do not anticipate this to be correlated by moves on yields below the key floor of 0.54%/0.60% on the US 10 year. Whilst the dollar seems to be the primary influence on gold right now, the lack of downside traction on yields could begin to drag on the gold breakout. We continue to believe that through the prospect of controlling the US yield curve, this means yields will become subdued in the months ahead. This should help support gold, but could also slow down the bulls.
A look at the relative performance chart shows how gold is performing strongly over the past couple of weeks. Every of the major currencies is trading positively against the dollar in that time, but just look at the enormous run on silver! Silver is befitting from all the factors driving gold higher, but with the added impetus of being an industrial metal too (as risk appetite turns positive).
Our long term position on gold remains bullish. Within this we expect further upside to be seen in due course, even if the path to get there is not smooth.
The fundamental drivers of driving gold higher are still in place. We still expect yields to remain subdued and an ongoing dollar weakness in Q3. This will help to sustain gold at these elevated levels and perhaps test the $1920 all time high in due course.
Fundamentals underpin and point to continued support for gold. Loose global monetary policy for many months (and possibly years) to come, will keep real yields subdued/negative and should continue to mean gold is attractive. Subsequently, this is still a good environment to be buying gold into weakness.
- $1814/$1818 – old resistance from mini range now underlying demand support
- $1805 – 20th July low
- $1794 – 16th / 17th July lows
- $1848 – near term consolidation rectangle breakout target
- $1868 – bullish implied target of April/June range
- $1920 – all-time high
The bulls are gradually breaking higher once more from the latest period of consolidation. Since moving higher through $1789, gold has been consolidating for the past week and a half under $1818. However, with a couple of strong sessions in a row, the bulls are pushing through $1818 resistance this morning into further new multi-year high ground.
Although our original five week uptrend was breached last week, we tentatively re-draw the trendline to account for Friday’s low at $1794, giving us a new (but slightly shallower) uptrend support. Momentum remains strongly configured, but also with further upside potential too. RSI into high 60s is not overly stretched, whilst Stochastics ticking higher again above 80 confirms ongoing bull strength.
Trading at levels not seen since late 2011, there is little real resistance until the all-time high (from September 2011 at $1920). There are several upside targets that can be derived currently. The April to June consolidation (from the low at $1660 to the high of $1764) can derive a conservative target of $1820, but anything towards a more bullish $1868 in the coming months. A close above $1818 would also derive a nearer term $28 upside target of $1846. Trading clear of $1818 also leaves $1789/$1790 as an increasingly important support too.
STRATEGY: With gold breaking out again this morning we are happy to back a continued run higher. We would also view any near term weakness as a chance to buy. Near term support between $1805/$1818 would be an opportunity, whilst the importance of $1789/$1790 support is growing now. A mini rage breakout targets $1848 in the next two weeks, whilst $1868 is a bigger implied target in the next couple of months. Medium term outlook is questioned under $1764.