Gold has turned near term corrective as risk appetite has picked up again, suggesting that a more safe haven bias could be returning. With the bulls taking a step back to breach pivot support at $1702 today, a near to medium term range has formed between $1660/$1646.
Gold has rolled over in recent sessions. This move has come as a risk recovery has taken hold. It has also come as its more traditional correlations begin to look more aligned.
US Treasury yields are pulling higher as gold has fallen away. This is hinting at a return to the traditional safe haven bias for gold.
The dollar retains its safe haven bias, and now with both the dollar and gold beginning to move in similar directions, the two are more aligned. Although tradition suggests that gold and the dollar are negatively correlated (the 21 day Correlation over the past year averages around -0.27), right now it is the dollar which is breaking this usual negative alignment and not gold.
As US equities are looking to break higher, gold has corrected. The relationship between gold and the E-mini S&P futures has been abnormally very strongly positive in recent weeks. Perhaps now this will begin to turn around. With VIX volatility falling to its lowest since early March, gold decoupling from higher risk of US equities is to be expected.
All this suggests that as risk appetite has looked to take a leg higher in recent sessions, gold is beginning to struggle. This could be the beginning of gold becoming a safe haven once more. We continue to see the outlook for risk as highly uncertain in the coming weeks, but the recent move to try and break higher on risk is now beginning to weigh on gold. It could be the beginning of a less decisive positive trend on the medium term outlook for gold and is certainly something we need to watch. On a medium to long term basis, given that real yields are expected to remain low/negative and the massive easing of monetary policy, we expect gold to remain supported.
- $1691 – near term pivot support, intraday low 28th April
- $1678 – 22nd April low
- $1671 – old pivot
- $1717 – intraday high, 27th April
- $1728 – intraday high, 24th April
- $1738 – 16th and 23rd April highs
With a second close lower in the past two sessions, already threatening to turn into a third today, the near term outlook for gold is deteriorating. We have been talking about the near term importance of the pivot at $1702 and the support of this pivot has been decisively broken today. With this coming as momentum indicators are starting to deteriorate, we must turn at least cautious of the outlook for now.
With RSI and Stochastics ticking lower, MACD lines are crossing lower, this at least suggests our bullish outlook is on hold for now. In recent weeks, the old March high at $1702 has become a gauge for the near term outlook. Breaking back underneath it this morning puts the bulls on the defensive again.
Looking on the hourly chart, it looks as though the near to medium term outlook is now a range play. We have previously discussed the mini top and bottom patterns that form, based around the $1702 pivot, and with another downside break of the pivot it has opened the $1660/$1670 band of support now. The hourly chart shows that consistent trading under $1702 lends a negative bias towards $1660/$1670 (the support of a range between $1660/$1746).
The $1702 pivot is now a barrier to gains and although there is a minor initial support at $1690 which is holding early in the European session, a breach would effectively open the range lows again. A confirmation (closing) breach of this pivot will suggest that playing this range is now the near to medium term strategy.
STRATEGY: Breaching the $1702 pivot has neutralised the immediate bullish outlook and we now look to be trading a range between $1660/$1746. Consistent trading below $1702 weighs towards the support.