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 the market reacts in the coming sessions could be crucial in determining the next move. Broad positive market outlook for risk is gold corrective, but could this be about to change? Gold is a key indicator in this.
Gold has slide back recently as broader risk appetite has been strong. However, with US/China relations (over US sanctions on China for its national security bull for Hong Kong) potentially taking a turn for the worse once more, gold is threatening to break out from its corrective move. It could be a case of following the newsflow for the near term outlook now.
Looking more medium term, we continue to see ranging Treasury yields and this is still likley to mean less conviction in moves on gold.
IN respect on price moves, it is interesting that gold has just started to pick up again in the past 24 hours, as the riskier major currencies (AUD, NZD) have fallen away. It would suggest that a risk negative event such as escalation in the tensions between US and China, would likely drive gold higher near term.
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 – intraday low, 28th May
- $1693 – 21st May low
- $1690 – 11th May low
- $1722 – near term pivot
- $1735 – 26th May high
- $1740 – 22nd May high and near term pivot
Gold has been under pressure for much of the past week, but a pick up into the close yesterday and a further run higher today brings the price back towards an important crossroads. Since topping at $1764 early last week, the market has formed a corrective trend, forming lower highs and lower lows. This shows as a near term downtrend channel on the hourly chart. However, finding support at $1693 yesterday, it lends the potential that gold could still be in positive trend, but just a much shallower trend (dating back to the early April low at $1640).
Subsequently with the market rebounding this morning again the importance of the previous pivot at $1722 and the mini downtrend (falling around $1727 today) becomes key for the near term outlook. Despite the near term correction, we continue to be buyers into weakness as we look for the next leg higher. A failure around the $1722 pivot and maintaining the near term downtrend, in the next session of so would suggest that the near term correction has further to go. Momentum indicators are still corrective and run this risk too.
So we find gold at a very important crossroads and how the market reacts around the low $1720s today could be key for the next move. A move above $1735 would mean the bulls back in the driving seat.
STRATEGY: The rebound from $1693 leaves gold at a key crossroads and the pivot of $1722 along with the near term downtrend are key to this. 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.