We remain positive on gold within the recent uptrend channel, however, the immediate bullish prospects are now far less secure. Over a medium to longer term outlook, both fundamentals and technicals remain strong and suggest weakness is a chance to buy. However, the near term technical outlook is becoming more uncertain in recent sessions.
Gold is finding it very difficult to sustain traction right now amidst a mix of signals. . A failed breakout on Monday came amidst a surge of outright bullish market sentiment that came with a potential COVID-19 vaccine. However, yesterday’s sell-off came amidst renewed risk aversion. It suggests that whilst medium term correlations are still a valid signal for gold, the day to day moves are far less certain. This makes following technical signals more pertinent on a near term basis, but as we lay out in our Technical Analysis section, there are some signs that these are becoming less convincing now.
Looking more medium term though, as we discussed yesterday, the ranging outlook for US Treasury yields and the dollar of the past month make it difficult to see sustainable upside traction on gold. Whilst we expect that ultra loose monetary policy, persistently low or negative real yields and an ongoing difficult economic backdrop, will all be a driver of positive gold performance over the longer term, the path to gains could be difficult. The price action of the past week reflects this.
The relative performance of gold has been more choppy in the past week.
We see the fundamentals as being supportive for gold over the medium to longer term and that any near term price weakness as a chance to buy.
- $1716 – 21st May low
- $1709 – 14th May low
- $1702 – old breakout support and pivot
- $1741 – 21st May intraday high
- $1753 – 20th May high
- $1764 – 18th May high – key multi-year high
Our bullish conviction on gold has taken a hit. Yesterday’s decisive negative candle saw the price drop around -$25 (almost -1.5%). An intraday breach of the $1722 pivot support comes as a warning too. The market continues to hold within the support of the recent mini uptrend channel (which is at $1714 today), but we are cautious now. The market held on to the pivot support at $1722 on a closing basis, but there are warnings signs beginning to show for the strength of the recovery.
The MACD and Stochastics momentum indicators have lost their positive configuration and are now tracking lower. The market has ticked back higher early today and this move needs to be built on with a convincing close higher today. The hourly chart needs to show a strong response too for the bulls to get back on track. The move on hourly RSI below 30 is another warning signal, and the rebound needs to move decisively above 60 today, whilst hourly MACD lines need to recover above neutral.
Initial resistance is at $1741 under the Wednesday lower reaction high of $1753. These need to be overcome to really suggest the bull response is sustainable. Intraday support at $1716 is now increasingly important.
STRATEGY: A three week uptrend channel suggests that near term weakness remains a chance to buy for further multi-year highs in due course, however, conviction is waning. An intraday breach of $1722 support is a warning. For now, we are still happy to back long positions to test $1764 again, but another failure under $1753 would add to concerns that the bulls are releasing control. Breaching the channel support would change the immediate outlook for upside and below $1702 would open $1660 again.