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You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Gold consolidation continues, but is a breakout looming?

Trading outlook:
The breakout support is holding well. We continue to use this pullback as a chance to buy for a push through the April high and on to test the crucial $1702 resistance.

 

 

Fundamentals/Newsflow

Gold is holding its breakout, but is now in consolidation. There is a suggestion in the last few sessions that correlations with the dollar, US Treasury yields and also US equities are being lost.

Against the dollar, a traditional negative correlation has been unwinding int he past week.  This could be turning negative, but equally it could also be a case of becoming de-coupled. This remains to be determined in the coming days and is something to keep an eye on.

Furthermore, against Treasury yields, the relationship on a near term basis also seems to be less decisive in recent days. This could be a case of both markets consolidating and losing decisive direction though. Once more, this is a situation to monitor.

The  same can be said for equities. Over the past three weeks, the correlation between gold and the E-mini S&P futures has been (abnormally) positive. However, in the last three sessions, this relationship has been less decisive. Again, this could be a function of consolidation on gold, but is this the beginning of a de-coupling of gold and equities, with a return to a more normal negative correlation?

What we do know is that the relative performacne of gold measured against the forex majors remains very strong. As major forex has been flat today, gold is looking to push higher once more.

WE REMAIN MEDIUM TERM BULLISH ON GOLD. With real yields expected to remain low and negative with the massive easing of monetary policy, we expect gold to remain supported.

 

Support
  • $1640/$1642 – breakout support, 7th April low (23.6% Fibonacci retracement of $1445/$1702)
  • $1625 – 3rd April high
  • $1605 – 3rd April low (also 38.2% Fibonacci retracement of $1445/$1702 is at $1604)
Resistance 
  • $1671 – 7th April high
  • $1702 – Multi-year high – 26th March high (23.6% Fibonacci retracement of $1445/$1702)
  • $1795 – 2012 high (October)

 

Technical Analysis

After the breakout of Monday, gold has spent the following time in consolidation around the breakout support at $1642. The bulls have taken their foot off the gas, but they remain in the driving seat. A strong, now three week uptrend comes in to support at $1629 and any retreat towards there will be seen as a chance to buy. They may have  lost a certain degree of upside impetus, but momentum indicators remain positively configured and near term corrections are still a chance to buy. The hourly chart shows a band of underlying demand between $1625/$1642 is now a near term buy zone. Holding on to hourly RSI above 40 would help maintain a positive configuration that weakness remains a chance to buy. We favour pressure on $1671 (Tuesday’s high) and maintaining a position above the 23.6% Fibonacci retracement (of $1445/$1702) at $1642 maintains the bullish bias for a retest of the $1702 high in due course. On a near to medium term basis, we remain bullish whilst above $1562 and see near term weakness as a chance to buy.

Richard Perry

Richard Perry

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