Consolidation has given way to renewed buying pressure. Falling yields and a falling dollar are driving the gold price higher. With the dollar on the brink of another breakdown, this could be set to propel gold higher once more. Decisive positive technical momentum is also now generating with this move. We look to use intraday weakness as a chance to buy.
In the wake of the regional Fed survey, the New York Fed manufacturing (Empire State Manufacturing) we have seen major markets take on a shift in sentiment. The survey disappointed with a sharp downside surprise and now markets are pricing for the potential of a deterioration in the August data. Other surveys will be coming out in the coming days (Philly Fed on Thursday and the flash PMIs on Friday) and these will give a picture as to whether the NY Fed survey is erroneous.
Despite this, there has been a significant move lower on the US 10 year yield.
Also, the US Dollar Index has fallen away again. The support on Dollar Index at 92.50 is key now. A closing breach would be another breakdown and imply -1.50 of further downside towards 90.50.
As ever, the near term caveat for these moves (yields down, dollar down, gold up) is for volatility arising from an agreement on a US fiscal support package. However, the two sides remain way apart. According to White House sources, they have not spoken with the Democrats in over a week. This lack of traction on fiscal support is helping to drive these renewed moves. In the absence of this, the gold bulls are back in control.
Looking further out, we still believe that fundamentals on gold will underpin for a stronger gold price in the medium to long term. 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 supported weakness.
- $1995 – intraday pivot 18th August
- $1980 – intraday support 17th/18th August, also old breakout
- $1966 – 13th August high
- $2015 – 7th August low
- $2031 – 11th August high
- $2050 – 10th August high
Gold had been consolidating throughout the European morning yesterday, but the sharply weaker than expected New York Fed manufacturing data seemed to flick a switch. The rally has been given a new lease of life. A decisive and strong bull candle added over +2% to the price yesterday and is sustaining the renewed positive momentum today.
The momentum indicators are reacting too. Daily RSI and Stochastics had been consolidating, but are now pushing decisively higher with RSI above 50 and Stochastics higher off a bull cross. The bulls will be looking to use the lack of real resistance until $2015 to drive the market higher today.
The hourly chart shows how the old breakout at $1980 is once more becoming a basis of support today. The near term strength is certainly developing today and a move into the next key resistance band $2015/$2050 is on. We now look to use near term weakness into support as a chance to buy. Initially this means $1980/$1995 is supportive, but $1966 (last week’s initial rebound high) is also supportive.
STRATEGY: The bulls have taken off again in the past 24 hours. This shift in sentiment is really driving the market this morning. We now look to buy into weakness. Whilst we cannot rule out another near term sell-off, we believe that the medium-term buying opportunity we have been waiting for is there. If gold can ride out any near term volatility from the US fiscal support, we are confident of renewed medium-term upside once more.