The market is beginning to steady once more, but still has an uncertain near term outlook. We continue to favour medium term long positions and looking beyond near term volatility, believe that this weakness will be a good buying opportunity.
Dovish central banks (RBA first to cut rates, Fed chair Powell hinting at cuts to come) is gold supportive. The big culmination sell-off of last week on risk assets which induced widespread margin calls has now settled and gold is also more settled. Signs of normal market conditions are returning again. The futures curve on gold is in contango (futures prices above spot) helps to play into support.
The broad macroclimate from the Coronavirus, of lower growth expectations, looser central bank monetary policies, in addition to negative real yields, will generate underlying support for gold in the medium term. As such weakness is a chance to buy.
- $1584 – intraday low, 2nd March
- $1579 – 2nd March low
- $1565 – 28th February low
- $1611 – 8th January high, old key breakout, also 2nd March high
- $1625 – 26th February low
- $1640 – intraday high, 28th February
The sharp sell-off from Friday has moderated and the market is looking to rebuild again. We still hold a medium to longer term positive outlook on gold and do not see Friday’s decline as an outlook changer. On the contrary, as long as the broader market panic selling does not re-appear then gold should find support (the sell-off was apparently as a result of forced selling amidst broad portfolio margin calls, rather than a negative view on gold). So, with effectively a doji candlestick yesterday (denoting uncertainty with the recent trend lower), we see this as a stabilising signal. The market is ticking marginally higher today to add to this. The RSI is back around 50, which has been buying opportunity levels within the 10 week uptrend which is still intact. Closing back above the 38.2% Fibonacci retracement (of $1445/$1688) at $1595 would be a positive signal, but the bulls need to get back above $1611 to really suggest the positive trend is decisively resuming. Friday’s spike low of $1565 is key support, with $1579 (yesterday’s low) also a minor higher low.