With a negative steer from the dollar re-engaging, gold is once more struggling to regain its safe haven bias. However, the technical correction target has been met and response to a breach of support has been encouraging for the bulls. We still look for confirmation of renewed bull control, but signs are beginning to look encouraging once more.
We posed he question of whether gold was regaining its safe haven status yesterday. It seems to have been too early in this suggestion, as yesterday’s sharp intraday move lower amidst a risk sell-off would attest. What is more notable from our charts is that there is a battle of safe haven versus negative dollar correlation for gold right now. With the dollar acting as a safe haven, this is pulling uncertain moves on gold versus its correlations.
There is little real reliable correlation for gold with the US 10 year Treasury yield. This would suggest that gold is not trading as a safe haven, for now.
The correlation of gold and equities has been broadly positive in recent weeks. Gold fell over last week and this has begun to be met by weakness in equities. Both trading higher today suggests that there is a continuation of the positive correlation, which shows little sign of ending yet.
Moves against the dollar look to be back in negative alignment in recent sessions.
On relative performance, gold picking up again today as the risk end of the forex major spectrum outperforms today (especially AUD and NZD), would again suggest that gold is not trading as a safe haven, but more on a negative correlation to the dollar.
Even though the slide back in price has begun, we see the risk is still only of a near term correction which we would see as a chance to buy. WE REMAIN MEDIUM TERM BULLISH ON GOLD. With real yields expected to remain low and negative with the massive easing of monetary policy, we expect gold to remain supported.
- $1679 – intraday low, 22nd April low
- $1671 – near term pivot, old 7th April high
- $1660 – 21st April low
- $1702 – old March key high – pivot
- $1717 – 17th April high
- $1738 – 16th April high
The drift lower on gold has continued early this week, but a positive reaction this morning will have the bulls sitting up and taking notice.
We have been discussing support from a pivot at $1671 recently. This was breached on an intraday basis yesterday, but this move appears to have been a false breakdown. A continuation of a move higher this morning is putting pressure on the key pivot resistance at $1702 once more. Given the recent run lower, whilst the market remains stuck under $1702 resistance, there will still be a corrective bias. However, we have been looking for renewed buy signals recently, and something could now be close.
We remain medium term buyers into near term weakness. With the implied target of $1666/$1671 from a top pattern completed below $1706 now having been achieved, the next technical signals are forming. This gives rise to the potential that the corrective move may now have played out in its entirety. The fact that the market breached the pivot support at $1671 and then reacted almost instantly higher is encouraging. The daily chart stopped short of forming a bull hammer yesterday but the candlestick closed well off the day low and implies a potential turning of sentiment. However, there needs to be a break back above $1702 to really suggest the bulls are back in control again.
This is a market that needs confirmation that the corrective move is done. Hourly RSI is edging higher again, but needs to be consistently above 60 (and ideally above 70) to reflect bull control. Furthermore, hourly MACD lines need to be decisively and consistently above neutral. But most important is the price breaking out above $1702 again (and holding the move). This would confirm the break of a run of lower highs and change the near term trend positive again.