Gold has begun this week with hints of a safe haven bias forming once more. This is weighing on the price slightly today. The technical outlook remains positive for now with a retest of the highs preferred, however, support of the breakout pivot remains key.
Coming into the new trading week, it is interesting to see that gold is slipping back slightly as risk appetite has been positive today. Could this be that gold could be edging back towards being more of a safe haven play once more?
Since early March, there has been a strong positive correlation with equities. However, in the past week, price moves have been far less aligned. There is still a positive bias to this 21 day correlation calculation, but if this continues, we can expect that the correlation will begin to pullback from is currently (and abnormally) extremely strong positive +0.89 (the average of the 21 day Correlation over the past 12 months is -0.03, or no correlation). We have expected that as volatility reduces (VIX Index is at its lowest since early March today), then gold will decouple from equities and revert to being far more of a safe haven asset play. This may hold gold back in a bullish equities breakout scenario, but it is difficult to see that a bullish outlook will last for long and this should help gold in the coming weeks.
Gold and the dollar are falling back today, although this could be more about how the dollar is still a safe haven asset. It also argues that gold is possibly returning to its safe haven position too.
Yields are ticking higher as gold moves lower is a safe haven correlation. The correlation has unwound recently, as April has shown less decisive correlation between the US 10 year yields and gold, but we anticipate the negative correlation (which averages around -0.54, or strongly negative over the past 12 months) to re-assert in due course.
We are a little cautious today, but retain a broad positive outlook on gold. Even if there were to be renewed weakness, we REMAIN MEDIUM TERM BULLISH. With real yields expected to remain low and negative with the massive easing of monetary policy, we expect gold to remain supported.
- $1708 – 24th April low
- $1702 – old key March high, increasingly a key pivot
- $1691 – near term pivot support
- $1738 – 16th and 23rd April highs
- $1746 – key multi-year high, 14th April
- $1754 – November 2012 high
The break back above the pivot at $1702 has just begun to lose its way again. After closing only slightly lower on Friday (albeit almost $20 above the day low), the market is again drifting back this morning. There is an on-going positive configuration on momentum which continues to suggest weakness is a chance to buy, however, once more we need to be mindful of this slip lower.
Given how the market used the support of the $1702 pivot as a platform for Thursday’s strong close, if the support at $1702 were now breach (and especially close) the support at $1702 it would suggest the bulls had again given away control. The outlook for the move would then be far less positive. Confirmation signals would come if RSI slipped under 55 (for a three week low) and MACD lines bear crossed.
For now though, these are caveats because the hourly chart is still positively configured, still above the support of the rising 89 hour moving average (which has been a good gauge for the outlook over recent weeks). Resistance at $1738 is also taking on an increased importance near term. We are still happy to buy into weakness to retest the $1738/$1746 resistance, but holding above $1702 is an important part of this strategy at least in the near term.
STRATEGY: Holding support of $1692/$1702 we now favour a retest of the $1746 high in due course. Below $1692 would neutralise the near term outlook once more, whilst turning corrective again below $1660 support which is now potentially another key higher low.