The gold bull run has lost impetus in recent sessions, but as yet the profit-takers are still being kept at bay. This is coinciding with the stalling of the downside moves on both yields and the dollar, suggesting that there remains a significant correlation. However, as yet recoveries on yields and the dollar lack traction. Technical signals suggest consolidation for now, but also to be on alert for any prospective profit-taking signals. We would continue to look upon any near term weakness as a further medium to longer term buying opportunities.
There has been a pause in the negative trends of both Treasury yields and the dollar. Subsequently, with the strong negative correlation that both still exhibit with gold, we are also seeing gold consolidating. The path of the next move on yields and the dollar could determine the near term path of gold.
We see the dollar not managing to gain recovery traction (since the ISM data yesterday).
We are also seeing the US 10 year Treasury yield not managing to find too much to pull a move higher either.
This is keeping the gold price around its recent all-time highs and the urge to take profits on the bull run is being resisted.
But what could drive yields and the dollar higher (and hence a gold correction)? A technical (overstretched) retracement of the recent moves is not forthcoming at the moment (see below). However, newsflow on the discussions between US Democrats and Republicans over the next stage of fiscal stimulus could trigger moves. A successful resolution of would likely be a boost to the dollar and yields. Discussions are ongoing and are considered “productive” at this stage. For now though, the market waits in consolidation.
Despite any near term fluctuations, our on going view is that we still see fundamentals on gold underpinning a stronger gold price in the coming months. Loose global monetary policy for many months (and possibly years) to come, will keep real yields subdued/negative and should continue to mean gold is attractive. Subsequently, this is still a good environment to be buying gold into weakness.
- $1960 – 31st July and 3rd August lows
- $1940 – 30th July low
- $1907 – 28th July low
- $1984 – intraday high, 3rd August, currently the all-time high
- $2000 – psychological, big round number
A consolidation on gold has developed over the past week. Although the market poked to a new all-time high of $1984 yesterday, the impetus has ebbed away from the rally. This has now broken the support of a two week uptrend and daily momentum indicators have begun to tail off.
As overcooked near term technical indicators begin to cool, the question becomes whether this will just be a minor consolidation before the next move higher or the beginning of an unwind. There is little on the daily signals for the bulls to be overly worried about yet, however the more considered uptrend of the past eight weeks comes in way back around $1844 today, so there is still a threat of an unwinding move if the bulls get tired and a little twitchy.
The hourly chart shows more of a consolidation has developed as indicators (hourly RSI and MACD) now develop ranging configurations. Initial support to watch is at $1960 as a decisive breach would imply a test of the more considerable support at $1940. We would then be looking at the configuration of momentum indicators, whether the move would be a drift or more considerable selling pressure developing. Resistance in this consolidation is $1984 which is preventing a look at the big round number $2000 level.
STRATEGY: A consolidation has set in on gold as the bulls take a pause. We question how much upside potential the market can have in this leg of the bull market before at least a near term unwind takes hold. A move towards $2000 cannot be ruled out, but this is an increasingly tired looking move. Below $1940 would now signal moves towards a correction, which would accelerate under $1907. We would still look for renewed buying opportunities into support.