Gold has been boosted by the latest confirmation that the Federal Reserve remain accommodative for some time to come. This has improved the outlook within the medium term range once more. However, there is key resistance still to overcome for the bulls to consider themselves in control. We subsequently remain cautious of how far this move can go.
Most of what can be taken from the Federal Reserve monetary policy decision yesterday should end up being supportive for our longer term positive outlook on gold:
- Low interest rates through 2022 (as of the dot plots)
- Continued asset purchases
- Downbeat on the economic recovery this year.
- Discussion of yield curve control
All these aspects play into a positive outlook for gold. Treasury yields falling back as a result is supportive through the negative correlation with gold (see below). A ongoing accommodative stance should also be dollar negative too, especially as the global economy starts to rebound. This will also be gold positive.
The only hampering factor for gold is that accommodative monetary policy as the US economy recovers, is also risk positive too, something which will act as a drag on gold.
Effectively this FOMC update helps to re-iterate what we see as a broad positive bias to gold, but one in which there will be a struggle to maintain momentum higher. The risk positive aspect of the accommodative Fed will act as a counter balance to the consistent low yield, dollar negative aspect of the policy too. In the Technical Analysis section below, we show the continued medium term ranging outlook, which we continue to believe will likely see resistance tested in due course. Sustained upside traction maybe a struggle though.
We expect further upside in the longer term towards $1800 to be seen in due course, however the path to get there (the choppy near term outlook) could be tricky to navigate.
- $1725 – top of near term pivot band $1720/$1725
- $1720 – near term pivot support $1720
- $1708 – 10th June low
- $1740 – 10th June high/11th June intraday highs
- $1744 – 1st June high
- $1754 – 20th May high
The near term outlook for gold has improved in the wake of the Fed, but still lacks conviction. The initial move was gold positive last night (more accommodative monetary policy stance from the Fed is negative for yields and the dollar and is supportive for gold). This has pulled gold through the mid-range resistance band of $1700/$1725 and completed a third consecutive positive candle. However the run higher has stumbled this morning as a retracement has kicked in. This is leaving resistance at $1740 and pulling gold back towards $1725 again. The question is, whether this is another lower high, under the previous levels of $1754 and $1744.
On momentum though there needs to be a sustainable improvement across our signals to suggest this rally will have the backing to make a key breakout above the batch of overhead supply between $1744/$1764.
The hourly chart shows how reaction around the near term breakout of $1720/$1725 could be important to determining the near term outlook, which is edging towards a more positive bias again in the wake of the Fed.
It is also important to point out that this all continues to play out within the medium term trading range $1660/$1764, which shows no sign yet of coming to an end. Within that, the market rarely tends to deviate for too long away from the mid-range $1700/$1725 area.
STRATEGY: For now, we remain cautious of rallies within the $1660/$1764 range as the technicals point to the continuation of the medium term consolidation. However the fundamental backdrop remains gold positive for an eventual breakout. Closing above $1744 would help to improve the medium term outlook.