Trading outlook:
We are increasingly encouraged by the positive reaction on gold in recent sessions. The bulls are looking ready to test resistance and we look for long positions to test $1642 with upside towards $1702 on a breakout. Near term weakness remains a buying opportunity.
Fundamentals/Newsflow
We still see gold edging higher, even in the face of some mixed signals across is traditional correlations. An improvement in risk appetite is seeing traditional safe havens suffer (yen weakening, Treasury yields higher) but gold is trading positive on the session (even seeing earlier weakness decisively bought into).
Today we have a mixed outlook on USD as the recent strength has taken a pause, but again, what looked to be a correlation with gold turning more positive, has not acted as a drag on gold.
We have seen an increasingly less certain correlation with equities in recent days as volatility has settled down. We expect this correlation to revert to its normal negative position in the coming weeks, but for now this correlation is not a reliable driver on gold.
What could be the case is that the longer term bullish fundamentals on gold are now beginning to see the cream rise to the top. Our re-basing chart of the major currencies performing against the US dollar in the past three weeks shows that gold (shown in the chart below in yellow) is now the standout performer on a relative basis and has put its mid-March sell-off behind it. We expect this to continue.
We believe that as the volatility continues to settle, we look for usual correlations to reassert for gold. Looking longer term, we still believe that with real yields expected to remain low and negative with the massive easing of monetary policy, we expect gold to remain supported and medium to long term positive.
Support
- $1605 – 3rd April low (38.2% Fibonacci retracement of $1445/$1702 is at $1604)
- $1595 – intraday low 6th April
- $1575 – 2nd April low
Resistance
- $1634 – 30th March high
- $1642 – 26th March high (23.6% Fibonacci retracement of $1445/$1702)
- $1670 – 11th March high
Technical Analysis
Despite the dollar strengthening on Friday, gold held up relatively very well. This bodes well for the near term outlook which has improved in recent sessions and has now posted three consecutive positive candles. Trading above the 38.2% Fibonacci retracement (of $1445/$1702) at $1604 is a gauge that suggests there is a bias towards the 23.6% Fib (around $1642). Despite an early gap lower at the open on Monday, the bulls once more seem happy to support and are pulling gold higher again. Already testing Friday’s high of $1625 is a strong response and closing today above here would show the bulls are ready to push forward again for the 23.6% Fib and test the March high of $1642. Momentum indicators are now picking up positively, with the Stochastics pulling into strong bull configuration, MACD lines moving above neutral and RSI back above 50. There is a good support band now growing around $1595/$1605 early this week as a platform for further recovery gains. Given the positive reaction to the correction to $1562 (an old pivot) the bulls are well-positioned once more. We still see weakness as a chance to buy, but now favour pressure on $1642 and an eventual breakout towards $1702. We remain positive whilst trading above $1562 persists.
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