We turn cautious on near term longs as the consolidation continues to grow and gold develops a short term trading range $1585/$1642. We remain bullish medium to long term and see near term corrections as a chance to buy.
Newsflow of the spread of Coronavirus continues to worsen, and this is weighing on equity markets once more. If equities sell-off then this could once more weigh on gold. Tradition suggests a negative correlation between gold and equities (shown below with our chart of US futures, the E-mini S&P futures chart). This correlation between gold and equities has become abnormally positive amidst the margin calls and liquidation of portfolios in recent weeks.
it is also interesting that gold and the dollar have just temporarily seen their relationship put on pause (as the dollar has been falling in recent sessions, gold has not managed to climb). However, we still expect this to be a near term phenomena and an ongoing negative correlation to persist.
The negative correlation between gold and moves on Treasury yields is beginning to get back on track (even if the downside move on the US 10 year yield this morning has done little to shift the gold price higher). However, if this move lower in yields persists, then this is likely to pull gold higher once more.
Whilst these correlations of gold with yields, the dollar are fairly normal, the abnormal correlation with equities are still throwing mixed signals to gold traders. However, once the normal negative correlation between equities and gold begins to return to normal again, then we expect that gold will begin to climb in the coming weeks. As such, with yields expected to remain depressed on the massive easing of monetary policy, we expect gold to remain supported and medium to long term positive.
- $1604 – 38.2% Fibonacci retracement of $1445/$1702
- $1592 – 26th March low
- $1585 – 25th March low (and 24th March intraday low / pivot)
- $1634 – 30th March intraday high
- $1642 – 26th March high, also 23.6% Fibonacci retracement of $1445/$1702
- $1670 – 11th March high
The consolidation that we have been seeing develop in the past few sessions, continues to impact on gold This means that the sharp rally has now hit the buffers around the 23.6% Fibonacci retracement (of the original bull run between $1445/$1702) at $1641. Tempering this rally in the past few sessions, is now seeing the momentum indicators moderate their advance. RSI has held around 55 whilst Stochastics are still advancing along with MACD. This leaves a mild positive bias although we are increasingly cautious of the advance now as the market again sells into strength early this morning. The prospective corrective move has yet to play out (holding above $1585 near term support), but if a second consecutive negative candle is formed today, then the move could begin to weigh on the recent recovery gains. The hourly chart shows a mini-range formation between $1585/$1642, but the hourly RSI moving below 40 would be an indication of the positive bias just slipping away again. A close below the 38.2% Fib at $1604 would begin to also weigh on sentiment. For now though gold is in consolidation.