It is encouraging that the bulls continue to react well in buying gold into weakness. It still feels like a difficult run higher, with subdued moves on bond yields hampering breakout potential. However, we continue to back moves to further multi-year highs. Our conviction for this strategy remains strong whilst trading above the breakout support around $1764.
This morning we see that gold is slipping slightly. This is a performance that is being reflected across major currencies, so gold is not alone there, as the dollar has picked up today. However, the relative chart below shows that over the past two weeks, gold is still a strong performer.
Aside from a little dollar strength related slip this morning, gold is still holding on strongly to its breakout above $1764. We still see any dollar strength as being near term in nature in the coming months as we anticipate the dollar will underperform in Q3. The rising infection rates in the US will weigh on the economic recovery, whilst the Presidential election with political uncertainty also set to weigh. This should help gold in the coming months and is why we see near term weakness on gold as a chance to buy.
Yields are struggling for any sustainable direction now. We believe that the market is already trading for “yield curve targets” from the Fed. Although this lack of direction may hamper gold in its bull run, we also believe that it will provide a basis of support for any weakness.
Our long term position on gold has been bullish for a while. It has taken some time to break higher from the medium term range, and even then, this move is still not decisive, but it is holding. Fundamentals underpin and point to continued support for gold. 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 in. Although we still anticipate a bumpy road on the the way higher, this will also provide opportunities to buy into any weakness.
- $1770 – 6th July low
- $1764 – old key May high and breakout support
- $1757 – 2nd July low
- $1789 – 1st July high, now the multi-year high
- $1795 – 2012 high
- $1820 – conservative implied target from April to June range
Another positive daily candle and decisive close higher has pulled gold to a new multi-year closing high and a test of the recent peak of $1789. The market continues run along the four week uptrend (very slightly redrawn to account for last week’s Nonfarm Payrolls spike low) which rises today to lend support at $1771.
Momentum indicators retain their positive configuration, with the RSI up into the mid-60s again, whilst Stochastics and MACD lines tick higher. We continue to expect gold will edge to new multi-year highs, whilst there is still an implied target to be derived from the April to June consolidation range breakout. A conservative target implies c. $1820 towards potentially $1830 in the coming weeks.
Given the propensity for gold to be cautiously breaking higher, we still look to use weakness as a chance to buy, with the trend at $1771 and the breakout support at $1764. A little conviction would now be lost under $1757, but we would remain confident of our strategy whilst $1744 support remains intact. Above $1789 is a high dating back to the 2012 peak of $1795.
STRATEGY: The old trading range resistance between $1744/$1764 is a growing basis of support for the bulls. We are happy to back the run higher but would look to use near term weakness towards $1764 as an opportunity to buy for continued upside towards an implied target of $1820 in due course. Below $1744 would question the immediate positive outlook, whilst below the old $1720 pivot support would lose bull control again.