With the dollar under continued pressure and yields also slipping, the breakout on gold continues to run to multi year highs. We continue to back the move, but are also watchful for near term profit-taking signals. We would view any near term unwinding move as another opportunity as we expect the all-time high of $1920 to be tested in due course.
A massive gold breakout has come as the dollar has been slammed in the past few days. The weakness of the dollar is certainly the key driver behind the move on gold. However, after a week of consolidation we also find Treasury yields also edging lower. This is having a double impact on gold and is pulling the precious metal strongly higher.
The dollar has now broken down below 95.70 on Dollar Index which implies a move towards 93.50. The key March low of 94.63 is being tested but for now is holding. This level on Dollar Index is a near two year low and would be significant if it were to be breached. The lower the dollar falls the more that gold will have upside potential in this run. How the dollar responds around 94.63 in the coming days could be key for outlook for gold.
However, this move on gold has also been accompanied by an interesting move lower on the US 10yr Treasury yield. The 10yr is now into the 0.54%/0.60% key floor. The fact that this downside move on yields is coming with risk appetite improving and dollar weakening suggests it is the market taking a view that the US economy could be about to come under pressure and will struggle relative to the rest of the world. Falling and/or subdued yields is supportive for will maintain the positive outlook for gold. Once more though, Treasury yields are still a key driver of gold and are now into a key consolidation area. Could this begin to hamper the gold bull run?
Near term moves aside though, 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 into weakness.
- $1860 – near term pivot support
- $1845 – 22nd July intraday higher low
- $1814/$1818 – old resistance from mini range now underlying demand support
- $1876 – intraday high, 23rd July
- $1900 – round number resistance
- $1920 – all-time high
Another strong bull candle formed yesterday as gold continues to accelerate higher. The breakout is now through all of our breakout targets, both near term ($1846 from a two week range) and medium term ($1868 from a two month range). The next barrier is a round number of $1900 and then the all-time high of $1920.
The strength of the bull run is significant, with momentum indicators extremely strong. However, with RSI into the high 70s, there will begin to be questions over just how much further the run can go. Given the strength and lack of resistance, this key move could easily continue towards the all-time high in this leg. However, a correction could also be swift too, so we must look for exhaustion signals.
On the hourly chart we note that the rising 21 hour moving average (currently $1865) has become a good basis of support in the past four sessions, tracking the move higher. We still see the buyers continuing to push gold higher early today, but there are starting to show some near term negative divergences on hourly RSI and hourly MACD lines. Whilst these are not outright sell signals, they are a warning that momentum in the run higher could be slowing. If the hourly RSI drops below 50, this would add to a warning of correction. There is near term support at $1860 which has become a pivot in the last couple of days too. A breach of $1860 would also be another potential corrective signal. Confirmation that a near term correction was setting in would be below yesterday’s higher low at $1845. An unwinding retreat into $1789/$1818 support area would still be medium term bullish and likely become another chance to buy.
STRATEGY: WE continue to back the breakout on gold and look towards the all-time highs. However, we are also on alert for near term profit-taking signals. Below $1860 could be a signal, whilst below $1845 would drag gold back into $1789/$1818. We would though view any near term correction as another chance to buy for further medium term upside.