Trading outlook:
Within the recent uptrend channel, we remain positive on gold, however, the conviction of the immediate bullish outlook is now far less secure amidst a loss of momentum and emerging mixed signals. Over a medium to longer term outlook, both fundamentals and technicals remain strong and suggest that weakness is a chance to buy.
Fundamentals/Newsflow
Positive market sentiment tends not to be too positive for gold. The traditional negative correlation with Treasury yields reflects this. However, yields are still ranging and this is acting like a millstone around the necks of the bulls.
Gold therefore continues to struggle for traction in its run higher. Whilst newsflow of vaccines and economies re-opening tend to be dollar negative (which is positive for gold), the broader risk positive aspect of this also hampers gold (which is still seen as a safe haven play). Subsequently, we see that the bull run higher which we continue to position for over the medium to longer term, could be a long and choppy road.
We now see the higher risk Aussie and Kiwi dollars in the forex majors beginning to perform much better than gold in recent sessions.
Despite this though, we see the fundamentals as being supportive for gold over the medium to longer term and that any near term price weakness as a chance to buy.
Support
- $1722 – near term pivot
- $1716 – 21st May low
- $1709 – 14th May low
Resistance
- $1740 – 22nd May high and near term pivot
- $1753 – 20th May high
- $1764 – 18th May high – now the key multi-year high
Technical Analysis
We turned far more cautious of the near term bull run in the wake of the strong negative candle last Thursday. Since then we have seen a battle for control which is yet to be resolved and our caution is well founded. There is still the positive bias of a three week uptrend channel on gold, whilst the market is still yet to breach the $1722 pivot on a closing basis. However, this pivot support is being tested on a daily basis now and the bulls are having to fight hard just to stand still.
This phase of trading has generated some increasingly mixed near term signals on momentum and it seems that this is turning into an important crossroads for the outlook of the coming weeks. Our bullish medium to longer term stance holds true (and will do whilst support at $1640/$1660 is intact), but the near term outlook is increasingly questionable. Holding the uptrend channel is important for momentum of the attempted breakout. However, more of a gauge would be the price holding above the $1722 pivot on an ongoing closing basis.
Below last week’s low of $1716 would begin to generate a more corrective set-up of lower highs and lower lows. It would also confirm a trend channel breach.
STRATEGY: A three week uptrend channel is holding for now and suggests that a positive bias remains however, conviction is waning. Pivot support around $1722 is being tested. For now, we are still happy to back long positions to test $1764 again, but a decisive breach of $1716 support would turn the market near term corrective and end the positive bias. We would still be looking to use near term weakness as opportunities to buy for further multi-year highs in due course, but the path to getting there is becoming less smooth.
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