There are signs that gold is beginning to revert towards more of a safe haven asset play. However, near term moves are also increasingly less certain as a trading range has formed between $1660/$1746. A mid-point pivot around $1702 has become a gauge and with this morning’s slip below the pivot there is a slight near term negative bias forming. Despite this, we still see near term weakness as being a chance to buy for medium to longer term upside.
The signs are growing that gold is increasingly reverting to its traditional safe haven play. The tight positive correlation with the E-mini S&P futures is breaking down. We have expected this to be the case as equities volatility has fallen away. Gold is also falling as Treasury yields begin to tick high, whilst the alignment with the US dollar (which is a safe haven play still) is also growing.
Below we see gold and US equities futures losing their alignment.
We also see yields beginning to edge higher as gold is slipping back.
Finally, that recently tight relationship with the dollar.
So as risk appetite is increasing, we see the gold bull run just losing ground on a near term basis (see the technicals below). However we do not expect this to be the driving force for gold over the medium to longer term. We expect the fundamentals will take control in the coming months.
The massive easing and balance sheet expansion of the Federal Reserve will weigh on the dollar in the months to come and we see the economic hardship for the global recovery being gold positive. If the Fed moves to yield curve control, this will also underpin gold. We therefore see near term price weakness as a chance to buy gold.
- $1691 – near term pivot support, ($1690 is 5th May intraday low)
- $1668 – 1st May low
- $1660 – 21st April low
- $1711 – 4th May high
- $1721 – 30th April high
- $1738 – 16th and 23rd April highs
The near term outlook on gold has become rather neutral in recent sessions. The negative implications of last week’s break below the $1702 pivot have become far less assertive as the market has since recovered back to the neutrality of the pivot again. However, a slip below the near term pivot at $1702 just lends a mild negative bias once more this morning, even if the move lacks conviction.
Gold has lost its near to medium term trending outlook as the market has built a trading range between $1660/$1746. Momentum indicators still retain a legacy of the March to April strong rally, but are increasingly mixed now. The RSI is moderating towards 50, whilst MACD lines fall and Stochastics have turned up around neutral. There is subsequently little conviction in the momentum indicators.
We still see gold as a buy into weakness and our medium to longer term outlook is for the price to push beyond the recent $1746 highs. There is good support $1640/$1660 to hold up corrections, whilst trading above the 23.6% Fibonacci retracement (of $1450/$1746) at $1677 adds weigh to a broader positive outlook. For now though, the bulls have been neutralised. There would need to be a push above $1721 (confirmed on a closing basis) to drive the next bull leg.
STRATEGY: The inability for the bulls to maintain control means that a far less certain outlook has taken hold in recent sessions. Subsequently, we play the range between $1660/$1746. The mid-range pivot at $1702 acts as a gauge but we expect the market to oscillated around this range now. We still see medium term weakness as a chance to buy.