As the near to medium term outlook becomes increasingly rangebound, there are false signals and inconclusive fundamental drivers on gold. However, we continue to view this range between $1660/$1746 as an opportunity to buy into weakness for the next bull leg in due course.
Gold is very much in a period of consolidation on a near to medium term basis. It is interesting that this has come as its main correlation markets also seem to be so too. Given the tight moves and lack of trending, it is too early to read too much into moves, but there are hints of traditional correlations returning.
In the past week, gold and Treasury yields have been fairly close in their negative alignment.
The dollar is a traditional negative correlation with gold. There are signs in the past week that this relationship is beginning to re-assert (even if the 21 correlation is for now fairly inconclusive.
Gold and equities are also de-coupling once more. We would expect this to continue as volatility on equities continues to reduce.
As we stated yesterday, for now the fundamental correlations for gold are of little real guidance. However, there are hints of something brewing and this could begin to play out in the coming weeks.
We continue to expect yields to remain low with the hugely dovish policy of major central banks. This will be gold positive moving forward. We also expect that the unlimited Fed balance sheet expansion will be dollar negative will also be a positive for gold in the long run. If the Fed moves to yield curve control, this will further underpin gold.
We see the fundamentals as being supportive for gold over the medium to longer term and that near term price weakness as a chance to buy.
- $1699 – 8th May low
- $1681 – 6th May low and 7th May intraday low
- $1668 – 1st May low
- $1722 – 7th and 8th May highs
- $1738 – 23rd April high
- $1746 – 14th April and key range high – also multi-year high
The near term outlook on gold has become increasingly uncertain and beset with mixed signals. Recent candlestick analysis has been throwing out wild and ultimately false signals. However, cutting through the noise, once more this morning, the market is gravitating around the old $1702 pivot. This is now the tenth session in a row where $1702 has been traded at some point in the session. This reflects the lack of direction on gold. Momentum indicators give out a mix of signals, with MACD lines still drifting lower, Stochastics drifting mildly higher (the aggregate of this suggests a very mild positive bias has taken). Whilst RSI is flattening a shade above its neutral 50 level. The range support of the past four weeks is at $1660, but consistently we see downside limited to $1680 before returning towards $1702 again. Resistance comes at $1721/$1722 below the range resistance extreme of $1746. It is all becoming a fairly uniform consolidation, with general moves around $20 either side of the pivot. We continue to expect an eventual upside break, but this near term range continues.
STRATEGY: We view the near term weakness within the near to medium term range $1660/$1746 to be an opportunity to buy. We add to positions in the support band $1660/$1680. We still see medium term weakness as a chance to buy for new multi-year highs in due course. A close below $1636/$1640 support defers.