A tick higher has helped to ease the pressure on support, but the outlook for gold remains uncertain. Dollar moves remain very important for the outlook and we look towards the ECB meeting today which will drive near term volatility. How the market settles in the wake of the ECB could be key to the development of the outlook on gold.
Dollar moves remain key for gold. Recent dollar strength has meant that gold has been sluggish, however, as USD ticked lower yesterday this helped to pull gold higher once more.
Here we see that as the dollar has slipped, gold is ticking higher again.
So the question is whether the dollar begins to turn back lower on a sustainable basis. We believe that the dollar will underperform in the coming months and this will help gold. However, the near term outlook could be impacted by the ECB meeting today. Just how dovish the ECB will signal today will impact on the euro outlook. In front of the meeting, a suggestion that the ECB is confident over the Eurozone economic outlook has supported the euro (helping to pull USD lower and gold higher). Does this mean that the ECB will not be that dovish today (opting instead to monitor the situation? It could set up for the ECB to not be as dovish as some had expected and that could help to ultimately support gold. By extension, a stronger EUR impacts for a weaker USD and with the negative correlation should be gold supportive.
The alternative move would be that the ECB is decisive in action to react to record low core inflation, and jawbone the recent euro strength towards $1.2000. A dovish ECB means EUR/USD lower and USD strengthens on that basis, which would hit gold. Just how much gold is hit will be interesting to see, as a major central bank turning dovish should be gold supportive once the dust settles.
Looking longer term, we believe the outlook for gold will be driven by Federal Reserve monetary policy outlook. Fed chair Powell’s Jackson Hole speech suggested a willingness to accept higher inflation and not hike rates will help to underpin gold in the months and likely quarters to come. Continued looser for longer global monetary policy will keep real yields subdued/negative and should mean that gold remains attractive. Subsequently, this is still a good environment to be buying gold into supported weakness.
- $1940 – near term breakout
- $1920 – 9th September low
- $1906 – 8th September low
- $1950 – 3rd September high
- $1955 – near term pivot
- $1974 – 2nd September high
After days of pressure around the 23.6% Fibonacci retracement (of $1451/$2072) at $1926, yesterday’s positive candle has just started to pull the market higher once more. There is still a sense of uncertainty over the outlook after having breached the three month uptrend. The near term uptick has lightened the outlook for what had been looking to be a move towards a bearish breakdown. However, there needs to be a sustainable move higher now. Another bullish session today would certainly go towards doing this.
We see the hourly chart above $1940 resistance which improves the outlook, but this needs to be confirmed with a decisive move back above $1955 to really suggest the bulls are pulling away from the previous period of corrective drift. This would then bring a more constructive near term outlook towards a test of $1991/$2015. It would then suggest $1902/$1920 is the basis of support in a range. The continued building of support is key for the bulls to re-assert themselves in a period of uncertainty.
STRATEGY: Gold has dipped into a phase of consolidation. For now, we still see this as part of near term weakness in a medium term bullish outlook and a chance to buy. However, our conviction is being tested. On the basis of holding support around $1902/$1926, we look to buy for renewed upside in due course and a retest of $1991/$2015. A decisive close below $1926 tests this view and lost below $1902. Under $1900 opens the $1853 low again.