Gold is threatening to take on more of a safe haven flow once more. As broad market sentiment begins to deteriorate, this is generating a positive bias within the recent range. We continue to expect an upside breakout from the month-long consolidation range as the medium to longer term fundamentals remain strong for gold.
Fed chair Powell re-affirmed the FOMC’s aversion to negative interest rates and did not talk about yield curve control. However, Powell painted an ongoing cautious/negative view of the economic backdrop (no surprises there) and the Fed is more likely to make the next move in a dovish direction. This is helping safe haven flows across asset classes. For gold this is seen as a positive and we are beginning to see the more traditional safe haven flow back into gold. This is showing across its correlations.
It is reflected in the resuming negative divergence between gold and equities.
In the past week, gold has also been far more closely aligned with moves on the 10 year Treasury yield too. (With yields falling, gold has begun to rise).
Furthermore, the US dollar continues to play as a safe haven in these markets. Gold has become more closely (positively) aligned with the dollar.
We continue to expect yields to remain low with the hugely dovish policy of major central banks. This will be gold positive moving forward. This will come via a continuation of the unlimited Fed balance sheet expansion but also potential further down the line, yield curve control. This is all positive for gold as its traditional correlations take hold. The main caveat remains a massive renewed equity market sell-off and gold being sold as part of broad portfolio liquidations. However, we still see any weakness as a buying opportunity.
We see the fundamentals as being supportive for gold over the medium to longer term and that near term price weakness as a chance to buy.
- $1697 – 13th May low
- $1690 – 11th May low
- $1681 – 6th May low and 7th May intraday low
- $1722 – 7th and 8th May highs
- $1738 – 23rd April high
- $1746 – key April high (and multi-year high)
The bulls are threatening to grasp control of the market once more. A decent gain on the day (of +$15) in yesterday’s session, with a solid positive candle has pulled the market higher within the consolidation. Reaction around the initial resistance of $1722 will now be key. This has been a barrier for almost three weeks but with the market pulling clear above the $1702 pivot (which has been a consistent consolidation area for 12 sessions in a row) suggests that the bulls are stirring from their slumber. If the $1722 resistance can be decisively overcome then it opens the range highs and the prospect of an upside break of the consolidation.
A mini two week uptrend is also now forming within the range and reflects a growing positive bias once more. As the market has been steadily forming converging support and resistance levels over the past month, a move above $1722 could be significant. There is an interesting uptick on Stochastics this morning as an initial move, but there needs to be more on RSI and MACD lines to see more conviction.
It is still too early to say that this is the time for an upside breakout, but the bulls are at least beginning to mobilise again as positive hourly momentum is building. A close above $1722 opens $1738 and the more considerable resistance of the multi-year high at $1746.
STRATEGY: We view the near term weakness within the near to medium term range $1660/$1746 to be an opportunity to buy. We add to positions in the support around $1690/$1700. A failure under $1690 plays the range again, whilst it would need a close below $1636/$1640 support to drive a significant shift in the bullish outlook.