As the near to medium term outlook becomes increasingly rangebound, there are false signals and inconclusive fundamental drivers on gold. However, we continue to view this range between $1660/$1746 as an opportunity to buy into weakness for the next bull leg in due course.
Near term technical signals are mixed, and the fundamentals are doing little to help the situation either.
The two key drivers of gold, US yields and the dollar have both become increasingly uncertain and lacking of trend in recent weeks.This has permeated into a gold price that is choppy and also throwing out a number of false signals.
Below we see both yields and the dollar lacking conviction.
Furthermore, the correlation with equities is reversing. This is to be expected as volatility continues to fall (the VIX is now at 2 month lows), but it means that it is a driver for the gold price that is no longer there now. A sharp equities sell-off could see a correlation with gold returning (and is the main caveat for downside risk on gold), but for now this is not the case.
Here is the VIX continuing to decline.
Also the reversing correlation with equities.
For now, the fundamental correlations for gold are of little use. This is a source of some of the near to medium term ranging for gold. However, we continue to expect yields to remain low with the hugely dovish policy of major central banks (and potentially even more dovish moves to come from the Fed (and as of this morning, the Bank of England too). This will be gold positive moving forward. We also expect that the unlimited Fed balance sheet expansion will be dollar negative (which will also be a positive for gold in the long run). If the Fed moves to yield curve control, this will further underpin gold.
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.
- $1699 – 8th May low
- $1681 – 6th May low and 7th May intraday low
- $1668 – 1st May low
- $1722 – 7th and 8th May highs
- $1738 – 23rd April high
- $1746 – 14th April and key range high – also multi-year high
The near term outlook on gold has become increasingly uncertain and beset with mixed signals. Recent candlestick analysis has been throwing out wild and ultimately false signals. However, cutting through the noise, once more this morning, the market is gravitating around the old $1702 pivot. This is now the tenth session in a row where $1702 has been traded at some point in the session. This reflects the lack of direction on gold.
Momentum indicators are giving out a mix of signals, with MACD lines still drifting lower, Stochastics drifting mildly higher (the aggregate of this suggests a very mild positive bias has taken). Whilst RSI is flattening a shade above its neutral 50 level.
The range support of the past four weeks is at $1660, but consistently we see downside limited to $1680 before returning towards $1702 again. Resistance comes at $1721/$1722 below the range resistance extreme of $1746. It is all becoming a fairly uniform consolidation, with general moves around $20 either side of the pivot.
We continue to favour an eventual upside break above $1746, but for now, this near term range continues.
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 band $1660/$1680. We still see medium term weakness as a chance to buy for new multi-year highs in due course. A close below $1636/$1640 support defers.