A weakening dollar is helping to pull gold higher once more. This week’s FOMC meeting is clearly a high volatility event, but positioning is beginning to take hold for a continuation of the dollar negative trade. This should underpin gold moving forward.
The improvement in risk appetite is hitting the dollar this week and this is helping gold higher. Gold can often be driven by safe-haven flows, but right now, this does not seem to be the case. We can see that the 21 day Correlation between gold and S&P futures has reverted to zero recently, as the chart moves seem to be more aligned.
US Treasuries and gold are also far less correlated.
So it is the dollar that gold seems to be running to.
Ahead of the Fed meeting this week, the dollar is slipping back. How the dollar responds to the Fed decision will be key for the dollar and key for gold.
Looking longer term, we believe the outlook for gold will be driven by Federal Reserve monetary policy outlook. Fed chair Powell’s Jackson Hole speech suggested a willingness to accept higher inflation and not hike rates 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.
- $1955 – old near term pivot becoming supportive
- $1937/$1940 – near term breakout now support
- $1920 – 9th September low
- $1968 – old near term pivot again resistance on Friday
- $1974 – 2nd September high
- $1992 – 1st September high
The bulls are just beginning to take control once more on gold. There have now been four positive closes in the past five sessions, and the market is again edging higher this morning. This has stabilised the supports within the $1902/$2015 five week range and the bulls are looking higher once more. Daily momentum is gradually ticking higher again, with RSI at a four week high today, and MACD lines threatening to cross back higher. These moves are still though relatively small, given the Average True Range continues to fall (today down at $31). Despite this, the hourly chart shows a move back above the old pivot line of $1955 (which has since become initially supportive) and the initial resistance at $1976 is being eyed. A move to test $1991 would then be next. The near term importance of the support band $1937/$1940 is growing now too.
STRATEGY: Gold is now beginning to build higher once more. Holding above $1955 we prefer positions towards $1992/$2015 resistance. We lose conviction in the immediate run higher on a close below $1937. Holding the support band $1902/$1926 is increasingly key to the positive medium-term outlook now.