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You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

With a corrective target hit, is gold beginning to renew its safe haven status?

Trading outlook:
Are there signs that gold is beginning to regain its safe haven flow? The technical correction has met its implied target, so we begin to look for renewed positive signals for the next bull leg higher. Support around $1671 is growing in importance on a near term basis.

 

 

Fundamentals/Newsflow

After the near term correction, in the past session of so there is beginning to be signs that gold is becoming slightly more aligned with its traditional safe haven correlations.

Gold has been supported whilst US equities are beginning to fall away. This is a classic sign of safe haven flow.

This also comes amidst falling US Treasury yields which is again a sign of a safe haven bias. In the last two sessions this has coincided with gold starting to build support.

A mild pick up on the Dollar Index whilst gold is also broadly supported. Shows the safe haven bias for gold is helping to counter the traditional negative relationship between gold and the dollar.

The relative performance on gold has steadied in the past two sessions (and is up slightly relative to the dollar). The Japanese yen is the only forex major trading higher versus the dollar in this time. This reflects a safe haven bias across major forex.

Even though the slide back in price has begun, we see the risk is still only of a near term correction which we would see as a chance to buy. WE REMAIN MEDIUM TERM BULLISH ON GOLD. With real yields expected to remain low and negative with the massive easing of monetary policy, we expect gold to remain supported.

 

Support
  • $1684 – intraday low 21st April
  • $1671 – near term pivot, 7th April high
  • $1640 – 7th and 8th April lows
Resistance 
  • $1702 – old March key high – pivot
  • $1717 – 17th April high
  • $1738 – 16th April high

 

Technical Analysis

The corrective conditions are still in place on gold. The question is whether the move has played out in its entirety yet. We continue to view near term corrections as a chance to buy on gold.

Looking back at the price action on previous moves lower on gold, during normal market conditions, the selling pressure has been limited before the buyers have moved to support. The only times where significant lurches lower have been seen have been when significant strain has hit through equities, with margin call related selling associated with gold. Unless this massive strain kicks in across equities again, we see gold will retain its attraction as an outperformer in this market.

So it was interesting to see gold bouncing off the old $1671 breakout yesterday. There is a small top pattern on the hourly chart which implies $1666/$1671 as a target area. Potentially, this move may have already now played out. We need to see how gold begins to react around support and resistance levels. Is weakness supported? Does momentum begin to improve?

The reaction around the $1702 neckline resistance could be key. It was a barrier yesterday, but if this is now breached, with improving momentum, then this is a sign that bulls are gaining strength once more. Hourly RSI consistently moving above 60 and hourly MACD consistently higher above neutral would be positive signals too. The bulls now need to prevent a decisive  failure under $1671 which would defer this move. The longer that $1671 holds as support the more interested the bulls will become again.

Richard Perry

Richard Perry

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