Price action of the last few sessions leaves gold at an important crossroads where the near term corrective outlook meets the medium term positive outlook. How traders react to Trump’s speech on China today could be a key driver in determining the next move. There are signs of a shift back towards a more positive outlook on gold again, but a near term corrective outlook still needs to be broken. The market is at a key inflection point.
On a near term basis, gold is struggling. The positive risk appetite of recent sessions has hit gold. But with a key speech of Donald Trump scheduled for today this could all change. Trump is expected to announce the US response to China legislating and imposing a security bill on Hong Kong, something that would weaken the integrity of Hong Kong’s “one party, two systems” principle. If the US imposed punitive sanctions on China then tensions between the world’s two largest economies could significantly escalate again and this would hit the recovery in risk appetite. This could come to benefit gold and end what has been a corrective period for the precious metal.
Gold picked up yesterday with risk appetite beginning to slip and in anticipation of Trump’s speech. Today we see gold is tenatively higher, with the market positioning towards belligerence from Trump, however, still with an element of caution.
It is interesting to see that where gold was once a significant outperformer, it is now steadily slipping in a relative stance versus the dollar. Over a one month basis, the performance of gold is in the middle of the pack. The commodity currencies are all outperforming gold, whilst safer havens are less strong.
However, when considered on a two week basis, the underperformance of gold really comes through. Gold is the worst relative performer over that time scale. The question is whether Donald Trump’s speech proves to be the game changer for this underperformance. We believe that the speech has the potential to shift the outlook for risk. This would be positive for gold and likely drive renewed strength on gold relative to forex majors once more.
These are all still near term impacts though. Looking more medium to longer term, we see the fundamentals for gold remain strong and supportive for gold. Negative real yields but also deflationary forces help to support gold, along with enormously accommodative monetary policy. We continue to see near term price weakness as a chance to buy gold for longer term upside.
- $1706 – 28th May low
- $1693 – 21st May low
- $1690 – 11th May low
- $1727 – 28th May high
- $1735 – 26th May high
- $1740 – 22nd May high and near term pivot
The outlook for gold remains on a knife edge. Following the rebound from $1693 on Wednesday the market has rallied back into the resistance around the $1722 pivot and a near term downtrend. Although the market closed positively yesterday, the candle hit the downtrend resistance and closed just under the pivot. Trading cautiously this morning, there is a real sense that this is a near term crossroads now.
Picking up off a medium term uptrend on Wednesday and hitting the near term downtrend today, this is a move that could be close to the bulls regaining control. However, the rebound has stalled slightly today around the $1722 pivot and needs to breach the downtrend (around $1724 today) to suggest the bulls are making their move again. It would need a move above $1735 resistance at least needed to really suggest positive momentum is building again.
For now, this is a waiting game. President Trump could easily announce something today that massively shakes the positive risk appetite and pulls strong positive momentum into gold once more. We remain medium term buyers of gold and see that this near term correction will be an opportunity. The corrective set up needs to be broken for that to take hold. Support at $1693 is growing in importance now and the support of a 7 week uptrend comes in at $1699 today.
STRATEGY: The rebound from $1693 leaves gold at a key crossroads around the pivot of $1722 and the near term downtrend. An upside breach of both would suggest renewed positive momentum forming and we would then look to buy on a breakout above $1735 resistance. A failure of this rebound, would suggest further to run in the near term correction and further wait for the next medium term buy signal.