Our caution over how far the recovery within the range could go, has proved justified as the near term outlook has rolled over. We look to continue to trade gold within the medium term range between $1660/$1764 and with near term corrective signals emerging, resistance is being bolstered and the bias is turning lower again. We do not expect this move will be sustained for too long though.
On Friday, we discussed about the prospect of a near term dollar rally and this would play negatively into gold. Its seems that this is the case for now. The dollar has picked up in the past few sessions and this is beginning to weigh on gold. There is also now a reversal on coming through on the 21 day Correlation, which is turning negative.
However, whilst we see this dollar rally is weighing on gold for now, we see the move will likely only be a near term move. The more considerable and reliable correlation over the medium term basis remains that of the 10 year Treasury yield. This is ranging over the past few months. A downside move on yields today may be helping to prevent a deeper decline on gold, and we see the likely continued ranging move on yields to be a factor in maintaining the $1660/$1764 multi-month range on gold.
The relative performance chart laid out below, shows that gold has continued to struggle over the past couple of weeks. Even as major currencies ex-USD have fallen over, gold has still struggled. This plays into its ranging characteristics.
For now, gold is trading within a range, but we do still ultimately expect further upside in the longer term towards $1800 to be seen in due course. However the path to get there, with a choppy near term outlook, could be tricky to navigate.
- $1720/$1725 – near term pivot band
- $1708 – 10th June low
- $1692 – 9th June low
- $1744 – 1st June high
- $1754 – 20th May high
- $1764 – multi-year high, key resistance 18th May high
For the past couple of weeks we have been increasingly neutral on gold. A bounce of three positive daily candlesticks in a row last week could have threatened this, but once more, the resistance band around the range highs has proved to be too much for the bulls. Failing again at $1744, the market is now falling over once more and moving into retreat. A negative candle on Thursday and a bull failure move on Friday, have come before gold faltering this morning.
Momentum indicators continue to reflect rallies turning into bull failures. Daily RSI is again showing a near term bounce failing at a lower level, this time in the mid-50s. Stochastics are crossing lower this morning, whilst MACD lines continue on their broad trajectory back towards neutral. Playing gold within a medium term trading range of $1660/$1764 continues to be the strategy.
The hourly chart shows that the pivot band $1720/$1725 within the range is coming under pressure this morning and a decisive breach would imply another break back towards $1700 area. Given the Average True Range is currently around $26 and early momentum has turned negative, this downside move is a growing possibility today. Initial resistance is $1733 this morning.
STRATEGY: As another rally within the medium term $1660/$1764 range has failed, the outlook has been neutralised once more. Near term moves below $1720 open for $1690/$1700 but the horizon for trading horizon for gold becomes increasingly short term before retracements set in. We still favour a long term breakout higher in due course and closing decisive above $1744 would suggest the bulls are finally preparing for a breakout.