With a range of mixed signals, both technical and fundamental thrown out by gold right now, it is perhaps not surprising that a medium term range between $1660/$1764 continues. We still prefer a medium term breakout and multi-year highs in due course, but for now this continues to play as a trading range.
Choppy moves on the US dollar lead to choppy moves on gold, at least at the moment. We noted yesterday that a near term dollar rebound was weighing on gold. This move was then turned on its head by the Federal Reserve announcing that it would use its emergency lending programme to buy up corporate debt. Although this was risk positive, it has also hit the dollar and gold swung back higher intraday yesterday.
The question now becomes one of how long this move on the dollar can last for. We continue to position for dollar weakness as 2020 progresses and this should help to usher gold higher. However, equally the strong negative correlation with Treasury yields will not help this move, especially if yields continue to range. The 10 year yield has been between 0.55% and 0.96% for almost three months now.
Whilst this should help an upside bias on gold, near term moves are going to be sticky and traction will be hard to sustain.
Today we see yields higher and the dollar a little weaker. Subsequently gold is ticking mildly higher, but with little conviction. We expect this difficult and uncertain ranging phase to continue. Gold is all but flat on a relative basis over the past couple of weeks (pretty much all major currencies are too).
For now, gold is trading within a range, but we do still ultimately expect further upside in the longer term towards $1800 to be seen in due course. However the path to get there, with a choppy near term outlook, could be tricky to navigate.
- $1704 – 15th June low
- $1692 – 9th June low
- $1685 – intraday low, 8th June
- $1733 – 15th June high
- $1744 – 1st June high
- $1754 – 20th May high
Gold continues to throw out a mix of signals as it trades around the middle of the medium term range $1660/$1764. The 21 day moving average has been all but flat for almost a month now and reflects this lack of conviction in these near term moves. Yesterday’s session could be taken as a snapshot summary of what is increasingly the outlook for gold now. An initial upside move which fell over before a move lower which bounced into the close. The market is showing little real direction this morning either. It is difficult to read too much into the outlook for yesterday’s candlestick.
However, taking a step back, we see the resistance of the range highs between $1744/$1764 remains solid. Momentum indicators continue to make their way into a medium term neutral configuration. The daily RSI faltering in the mid-50s and drifting back to 50, whilst MACD lines tail off again and Stochastics roll over. We continue to hold a positive view that this will be a range that breaks to the upside, but for now there is little real traction that can be trusted in either direction within the trading range. Yesterday’s session is a case in point.
The hourly chart shows the market sustaining yesterday’s rebound and the support of the $1720/$1725 pivot band is holding. A breach of this support would though lend a mild negative bias towards $1700/$1704. Initial resistance is around $1733.
STRATEGY: As another rally within the medium term $1660/$1764 range has failed, the outlook has been neutralised once more. Near term moves below $1720 open for $1690/$1700 but the horizon for trading horizon for gold becomes increasingly short term before retracements set in. We still favour a long term breakout higher in due course and closing decisive above $1744 would suggest the bulls are finally preparing for a breakout.