The bulls are back in control on the decisive breakout above $1642. We look to use this morning’s intraday weakness as a chance to buy around the breakout.
Gold has surged to breakout to three week highs. The move has seemingly been decoupled from moves on US Treasury yields. The usual safe haven relationship is less certain now. We show this relationship by inverting the US 10 year yield.
The far more interesting correlations for gold come with USD and equities (we take as the E-mini S&P futures). In the past week there has been a shift in the relationship with the US dollar. Normally the correlation is consistently negative, however during the early weeks of the Coronavirus outbreak (mid-Jan to end Feb), the correlation became positive (both acting as normal safe havens). However, as volatility spiked and gold bacame more positively correlated with equities in March, the correlation with USD turned negative. It is interesting to see that in the past week, gold and USD are moving in tandem once more. This comes as the positive correlation with equities has begun to tail off. Yesterday’s moves (where gold, USD and equities all went higher) seemed to go against this slightly, but we expect equities to remain choppy in the coming weeks and the USD to retain its performance and markets struggle for sustained risk appetite improvements.
We showed yesterday the improvement in the performance of gold relative to other major currencies. Over the course of trading since 4th March, gold is outperforming all of the majors, including the US dollar.
We believe that as the volatility continues to settle, we look for gold to continue to perform well. Looking longer term, we still believe that with real yields expected to remain low and negative with the massive easing of monetary policy, we expect gold to remain supported and medium to long term positive.
- $1642 – breakout support, 26th March high (23.6% Fibonacci retracement of $1445/$1702)
- $1605 – 3rd April low (also 38.2% Fibonacci retracement of $1445/$1702 is at $1604)
- $1595 – 6th April low
- $1671 – 7th April intraday high
- $1702 – Multi-year high – 26th March high (23.6% Fibonacci retracement of $1445/$1702)
- $1795 – 2012 high (October)
A huge positive candlestick has put the bulls in control of gold once more. The positive candles have been building in recent sessions, but the reaction to an early gap lower on Monday morning was for the market to buy consistently throughout yesterday’s session. Technically, the outlook is strong once more, with the decisive close clear of the resistance at $1642 which also means clearing the 23.6% Fibonacci retracement (of $1445/$1702) at $1642. Momentum indicators are decisively positive now, with RSI confirming the breakout and above 60 whilst MACD lines are accelerating above neutral and Stochastics bullishly configured. After such a strong candle (which added $45 on a close to close basis and $65 from the day low) there can be a tendency for at least an intraday pullback, which could be seen today. However, we look to use intraday weakness as a chance to buy, with the breakout at $1642 as a key support area now. There is an uptrend of the past two weeks rising at $1604 today as a gauge for the near term outlook, but the bulls will certainly now be eyeing the multi-year high of $1702 again. Initial resistance is the overnight high of $1671.