There are signs that gold is beginning to revert towards more of a safe haven asset play. However, near term moves look less certain as a choppy ranging formation has taken hold between $1660/$1746. With the market lacking real trend within this consolidation, the outlook for the continuation of this bull run is becoming less decisive.
The selling pressure last week came as profit-taking and month end positioning weighed on the price. However, it is interesting to see that these moves have failed to find much traction, rebounding on Friday and holding ground again today.
There are ongoing signs that gold is becoming more aligned with safe haven asset flows. Essentially a ranging formation on gold has formed in recent weeks as Treasury yields have lacked direction. The dollar has also been seen as a safe haven asset and has become far more aligned with gold in the past couple of weeks. Gold is also losing its positive correlation with equities (something that was likely to be seen as volatility has reduced.
However, even as the near term outlook has become less certain in the past few weeks, we remain bullish of gold in the medium to longer term outlook. The massive easing and balance sheet expansion of the Federal Reserve will weigh on the dollar in the months to come and we see the economic uncertainty being gold positive. If the Fed moves to yield curve control, this will also underpin gold. We therefore see near term price weakness as a chance to buy gold.
- $1691 – near term pivot support, (28th April low, 4th May low)
- $1668 – 1st May low
- $1660 – 21st April low
- $1721 – 30th April high
- $1738 – 16th and 23rd April highs
- $1746 – 14th April high
It had looked late last week that the market was stabilising, but the huge swinging candles that finished the week have suggested this is not the case. A huge bear candle broke a four week uptrend and closed the market decisively below the $1702 pivot again. Friday’s recovery move simply muddies the waters of the near term outlook further and the rebound is back around the $1702 pivot. This time though, the pivot is a basis of resistance and seems to be a mean reversion point.
Our concern for the past week or so has been that gold has formed a range between $1660/$1746. The price action of the past couple of sessions suggests that this is the case. There is a corrective slip on momentum which is still playing out and the moves lower on MACD and Stochastics play into this. We had been looking to turn near term bullish again on gold, but this prospect has again been put on ice through this range formation.
We continue to believe that buying gold into weakness is a viable strategy, but for now we are cautious. Above the $1702 pivot, the near term lower high at $1721 is a barrier to gains as the hourly chart begins to also take on more of a ranging configuration. Initial support is building at $1691, below which would open the range lows again $1660/$1668.
STRATEGY: The inability for the bulls to maintain control means that a far less certain outlook has taken hold in recent sessions. Subsequently, we play the range between $1660/$1746. The mid-range pivot at $1702 acts as a gauge but we expect the market to oscillated around this range now. We still see medium term weakness as a chance to buy.