A break to multi-year highs, but we are cautious of chasing the market higher at these levels. We remain bullish for buying into weakness into the support band $1671/$1702.
Gold has broken out. The move has coincided with an interesting shift in the relationship with the dollar once more. In the first week of April, gold and the dollar were moving in similar directions (which is not the usual correlation). However, in the past week, the more conventional negative correlation seems to be re-asserting. As the dollar has slid back, gold is now trading higher.
Of the other correlations, it is interesting to see little real link between US Treasury yields and gold. The correlaiton between gold and equities still seems to be positive, but this is not one which we expect to persist and is still likely to be a function of the retracement of huge selling and volatility on equities.
We continue to see the excellent performance of gold relative to major forex. It remains the only one to be outperforming the dollar (above zero) since early March.
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.
- $1702 – old March high – breakout support
- $1671 – near term pivot, 7th April high ($1673 was the 13th April low)
- $1640 – breakout support, 7th and 8th April lows
- $1725 – intraday high 14th April
- $1754 – November 2012 high
- $1795 – 2012 high (October)
Gold has broken out to new multi-year highs once more. The peak in March was $1702 and this had been a high dating back to December 2012, but over the Easter weekend, the market has broken through to open the upside once more. The next minor resistance is $1754 whilst $1795 is the 2012 high and next barrier of note. The key for the bulls today is consolidation of the breakout. Coming over the Easter trading period with thin trading volumes, the move needs to be confirmed. Momentum is strong but certainly the bulls would be looking towards RSI pulling into bullish territory (above 70) to given them confidence. There are certainly questions of whether chasing a breakout at these levels is correct strategy. Previous breaks have seen unwinding retracements. Having already added $260 in four weeks, there has been a lot already put into the move. An uptrend sits at $1663 today, and there is good near term support around $1671/$1672. The early consolidation this morning shows a market cautious on this breakout and so are we. We remain bullish on the medium term outlook and prefer to buy into supported weakness now. Initial resistance is this morning’s high of $1725.