The rally has just begun to show near term signs of profit-taking as the rally has rolled over this morning. We now look to buy into weakness supported around the $1553/$1560 pivot band.
There are a raft of fundamental factors that play a key role in the movement of gold, with the push and pull of these factors collectively driving huge volatility in recent sessions. Just in the past couple of days, positive market sentiment returning has been positive for gold as it means an end (at least for now) to portfolio margin calls and an end to the forced selling of gold positions as part of a portfolio of assets.
The dollar correcting back is also gold positive, along the traditional negative correlation between the two. The correlation currently remains -0.7 which is still very strongly negative.
Treasury yields have just started to consolidate, which could begin to limit the advance of gold to an extent.
Also today, there may be a near term focus away from gold after the huge package of fiscal support agreed by Congress. This is risk positive and therefore has just see the tailing off of the gold rally (profit-taking) this morning. Gold is a traditional safe haven, even if it has not traded as such recently. If a bottom can be found in risk assets then the sharp gains in gold may be seen as a profit-taking opportunity as traders switch into higher risk.
However, our view remains that gold remains fundamentally strong from here over the medium to longer term. There is huge open-ended asset purchases by the Fed and this will underpin gold in the months ahead. Enormously dovish major central banks, negative real yields and economic struggles are all positive for gold.
- $1585 – intraday low 24th March
- $1560 – near term pivot
- $1553 – 17th March high, neckline of base
- $1604 – 38.2% Fibonacci retracement of $1445/$1702
- $1635 – intraday high 25th March
- $1650 – 12th March high
Gold has been seeing some wild movements in recent days as a sharp three day rally added over 10% back on to the price (having previously fallen almost -15% during the $1702 to $1450 sell-off). However volatility is still clearly very high and this does not necessarily mean that gold will be travelling entirely in one direction. As we come into the European session, gold is beginning to slip slightly once more. This could simply be an account of near term profit-taking (and effectively moderating some of the exuberance of the recent rebound). It could generate another corrective near term move though. The hourly chart shows a rolling over from $1635 overnight. This is unwinding overbought hourly momentum. If the RSI were to pull below 40 and hourly MACD back below neutral it would indicate that the near term bull move has played out and at least a more ranging outlook could be formed. A move back under $1585 (intraday low from yesterday) would add to the likelihood of a pullback towards the pivot area (of old highs and lows in the past couple of weeks) between $1553/$1560.