The flood gates that have been holding profit-taking at bay finally seem to be opening. With the dollar rebound developing and Treasury yields pulling higher, we are seeing a pullback forming on gold. Technicals show near term corrective signals developing and gold pulling back towards the first real band of support $1940/$1980. We position to sell intraday rallies into resistance for this near term correction which certainly has room to run for now. However, we continue to see this as a near term move which will be the source of the next medium-term buying opportunity.
Finally signs of recovery on Treasury yields and the dollar. As such, with the significant negative correlation that both have with gold still very much intact, we see gold is pulling lower. Although there is still no decisive traction towards a US fiscal support package, Friday’s payrolls report has been a turning point.
The US 10 year yield is above 0.58% and looking higher. The next barrier is around 0.63%
The US dollar is also building something of a near term recovery after weeks of selling pressure. How far can this rebound go? Well, the move is still yet to decisively take off, but a move above 94.00 on the Dollar Index would be a trigger for further rebound (this equates to a move below 1.1695 on EUR/USD and/or a move below 1.2980 on Cable. A move above 94.00 on Dollar Index would finally open for the technical rally into 94.63/95.70 resistance.
These near term moves on yields, the dollar and gold are certainly linked, and given how stretched the moves on the dollar and gold have become, the snap back could be considerable.
Looking further out though, we remain bullish on gold. As such we would view any near term weakness that unwinds some of the exuberant rally on gold as being an opportunity to buy once more. We still believe that fundamentals on gold will underpin for a stronger gold price in the medium to long term. 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 into supported weakness.
- $1984 – 3rd August high
- $1968 – 4th August low
- $1960 – 3rd August low
- $2015 – 7th August low, old support is new resistance
- $2049 – pivot, 10th August high
- $2072 – 6th August high, the all-time high
After such a strong run higher on gold, the Nonfarm Payrolls report seemed to trigger a shift in sentiment on gold (also the dollar and Treasury yields too). Gold has since formed two negative candlesticks and the move is accelerating lower this morning. There have not been three successive negative closes on gold since May.
There is a considerable negative move developing through momentum indicators (should the market close around current levels today) with RSI back under 70 being the first real negative signal. However, MACD and Stochastics are also beginning to deteriorate and this would weigh on the outlook.
The hourly chart shows a decisive move below the initial low of $2015 from Friday, meaning that there are now lower highs and lower lows. On a technical aspect too, the failure at $2049 yesterday afternoon was also the old support of a mini top and plays into the corrective momentum building.
The aggressive nature of gold decline early this morning (when there was little move across forex majors), suggests that the corrective momentum could be quick if it goes. A retreat into the $1940/$1984 consolidation band looks increasingly likely now. However, notably, the support of a two-month uptrend does not come in until $1865. There is a band of resistance $2015/$2030 now as a near term sell zone.
STRATEGY: Near term profit-taking is taking hold and we expect a correction into the $1940/$1980 old consolidation band. We look to use intraday rallies as a chance to sell to play this near term correction. Resistance now $2015/$2031. Once this correction plays out we would look to use support as another opportunity to buy.