We turn cautious for the near term outlook as support has been breached. However, we will now be looking for the renewed supported buy signals and the next opportunity for medium term long positions.
Gold has turned lower this morning. This could either be a simple bout of profit taking on near term longs, and/or the first signs towards a return towards gold acting more of a safe haven once more. We believe that it could be something of both.
As equities have rallied again, gold is lower. This is a move away from the recent positive correlation (with US equity futures).
The usual negative correlation with the dollar continues. As the dollar has moves higher gold has moved lower (even if the calculation of the correlation has shown a tick higher
There is still little real directional value in the relationship with Treasury yields.
It is interesting to see that the strong relative performance of gold (on our rebasing chart) is moving into reverse today. Major forex is broadly mixed to a shade weaker against the dollar. However, gold is pulling sharply lower. This suggests that there is room in a potential retracement.
We see the risk of a mild correction is still there for gold, but we would still see it as a chance to buy. 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.
- $1690 – intraday low 17th April
- $1671 – near term pivot, 7th April high
- $1640 – 7th and 8th April lows
- $1702 – old March key high becomes pivot resistance
- $1719 – intraday high 16th April
- $1738 – 16th April high
We have become increasingly cautious of the breakout on gold in recent sessions, and this morning we have seen our concerns play out. A decisive downside break of not only near term support at $1706 but the breakout support of $1702 and the four week uptrend has occurred. Although not yet with a closing breach of support at $1702, the decisive downside break early today suggests a key break of the support and a near term shift in outlook. It comes with Stochastics crossing lower and RSI pulling back again.
The hourly chart shows the near term top pattern has now completed and implies a retreat towards $1676. Furthermore, we see hourly momentum turning corrective, with hourly RSI moving below 30 (when 40 was previously seen as supportive), whilst hourly MACD lines are also deteriorating below neutral. The previous support band $1702/$1706 is now near term resistance and already this morning, we see this is building as part of the near term correction.
Despite this, we continue to believe that near term weakness on gold will simply be another opportunity to add to medium term long positions, with this near term move playing out as another such chance to buy. However, for now, gold is in retreat. There is good support around the old breakouts of $1642 and more recently $1671. Despite the continued positive medium to longer term outlook, it is a time for caution on gold. However, we look for supported buy signals for the next chance to go long. Holding support at $1671 would be a positive signal now.