The gold bull run has hit the buffers in the wake of Friday’s nonfarm Payrolls. A correction still threatens, but the move is in the balance this morning as the recent three week uptrend is being threatened. How the bulls respond in the coming days will be important for the near to medium term outlook. Despite this, with a strong fundamental outlook, we would continue to view any near term unwind as a chance to buy.
We continue to view the moves on Treasury yields and the US dollar as being key for the near term outlook on gold. Correlations remain extremely strong and so, with yields threatening higher and the dollar up in the wake of the payrolls report, the potential for a more considerable period of profit-taking setting in on gold is high.
It was not a payrolls report that we had anticipated (a positive surprise looked unlikely going into the announcement) however, what this has driven is the rebound on yields and the dollar that has been threatening (as least on USD) from such stretched oversold positioning.
We continue to see extremely strong negative correlations between the 10 year Treasury yield and gold, but also with the Dollar Index and gold too.
However, the momentum in these retracements has stalled slightly this morning. Yields especially have pared their early rise and this is just inducing a degree of consolidation on gold. We would look for a move above 0.58% no on the US 10 year yield to drive traction in a gold correction. As for the dollar, there is a more considerable barrier of 94.00 on USD Index to overcome. This would then open for a technical rally into the 94.63/95.70 resistance band. This would be the key trigger for a near term gold correction to set in.
For now, the upticks on both yields and the dollar are still as yet to turn into anything more considerable. As such the pullback on gold has yet to gain real traction. We would be still looking for key moves on the markets to play as a key impact on gold.
We would still look at the announcement of a wholistic US fiscal support package (and not just executive orders from President Trump) as being a near term outlook changer. For now, though we look at how far the moves can go in the wake of payrolls.
Looking further out though, we remain bullish on gold. As such we would view any near term weakness that unwinds some of the exuberant rally on gold as being an opportunity to buy once more. We still believe that fundamentals on gold will underpin for a stronger gold price in the medium to long term. 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 supported weakness.
- $2015 – 7th August low
- $2009 – 5th August low
- $1984 – 3rd August high
- $2036 – intraday high 10th August
- $2064 – intraday high 7th August
- $2072 – 6th August high, currently the all-time high
The bull rally on gold was already beginning to stumble ahead of Friday’s payrolls report, but the risk positive/dollar positive report has finally started to see gold dragged back. After a loss of -$28 on the session, there is a real risk of this turning into something bigger now. How the market responds in the coming days to the price pulling back around $40/$50 off its highs will be important as to the near to medium-term outlook.
A fall back to $2015 has stabilised initially today, but if the selling pressure ramps up again to breach this reaction low, then the momentum in a correction could begin to develop. If one strong negative candle turns into another, then the market could start to see some greater profit-taking. A three-week uptrend is being severely tested this morning (coming in at $2031). There is effectively now a small topping pattern that would form and be confirmed below $2009. This would then open for a deeper correction back into the $1940/$1980 consolidation band.
As the market consolidates early today, there is initial resistance at $2036 and then $2048 to overcome for the bulls to get back on track.
STRATEGY: Some near term profit-taking is still possible, but for now gold is in a holding pattern. We would look at losing $2015 support as a driver of correction now. This could then drive gold back into the band $1940/$1980. Back above $2048 regains the positive momentum. We would still see a correction into support being a near term move and to be another opportunity to buy.