The run into multi-year high ground has again been pegged back as the breakout has slipped, however for now, the bulls are still in control. We look to use near term weakness as an opportunity, but holding above support at $1744 is important to sustain the breakout. Nonfarm Payrolls are likely to elevate near term volatility, but given the ongoing dovish steer from the FOMC minutes, we expect gold will continue to be supported.
The FOMC minutes showed that members are committed to using the full range of tools available. This apparently includes the concept of yield curve control. This will keep Treasury yields subdued and low for a while to come, something that is supportive for gold over the medium to longer term.
We still see the negative correlation with Treasury yields is strong and is a primary driver of gold. This will help to underpin support for gold in the months ahead. There is a concern though that is may also restrict significant upside traction. Given the latest breakout on gold has just been clipped slightly, this could be indicative of the time to come (and a difficult path to gains).
On a near term basis though, with yields falling back again today, we see the decline on gold just now beginning to hold ground.
Gold is very much running along safe haven positioning. It is interesting that a rebound on equities is testing a downtrend, whilst gold has slipped back to test its uptrend. If equities continue to pull higher, then this may also restrict gold’s upside on a near term basis at least. Despite this though, the 12 month average of correlation suggests that equities are not a great gauge for gold going forward and this is likely to have less of a baring on the outlook than the direction of yields.
Our long term position on gold has been bullish for a while. It has taken some time to break higher from the medium term range, and even then, this move is not decisive yet. Yet with ultra loose global monetary policy for many months (and possibly years) to come, this will keep real yields subdued/negative and should continue to underpin an appetite to support gold. Subsequently, this is still a good environment to be buying gold in. Although we still anticipate a bumpy road on the the way higher, this will also provide opportunities to buy into any weakness.
- $1764 – old key May high
- $1759 – 1st July low
- $1744 – important pivot of lows and highs ( between $1744/$1747)
- $1779 – previous high, 24th June high
- $1789 – 1st July high, now the multi-year high
- $1795 – 2012 high
Just when it looked as though gold was starting to build some positive traction, the bulls have been dragged back once more. This tendency has been a feature of this bull run on gold. Breakouts never seem to be clean. A bearish outside day session yesterday comes as a disappointment for long positions, but is not disastrous, yet. A pullback to the support of what is now a four week uptrend (today at $1764, which is also the breakout of the old May high) has the potential to be an opportunity. However, the bulls will need to fight for it.
The market is consolidating this morning, and for now is holding above $1764. The breakout of the old May high at $1764 has been a basis of support in recent sessions, but if there is a closing breach of yesterday’s low at $1758, then the impetus of this breakout will turn sour and be lost on a near term basis.
Momentum indicators have tailed off slightly in the wake of yesterday’s move, but retain their positive configuration for the time being. They will also need to be monitored for corrective developments.
Whilst we are again left frustrated by this latest failure to break clear of resistance, we would remain positive on gold whilst the market holds on to the breakout of the old highs above $1744. Resistance at $1789 is the new multi-year high, a shade under $1795 which is the key 2012 high and we still expect this to be tested in due course as the market moves towards an implied target of $1820 from the range breakout.
STRATEGY: The old trading range resistance between $1744/$1764 is now a basis of support for the bulls. We look to use weakness into this area as an opportunity to buy for continued upside towards an implied target of $1820 in due course. Below $1744 would now question the bull control, whilst below the old $1720 pivot support would lose bull control again.