GOLD TODAY – Dollar volatility driving price indecision

Otmane El Rhazi from The Bullion Desk.

Short Term: Medium Term: Long Term: Resistances: R1 1,205 38.2% Fibo R2 1,211 UTL R3 1,212 100 DMA R4 1,224 April high Support: S1 1,201 7 DMA S2 1,199 21 DMA S3 1,196 50 DMA S4 1,190 February low Stochastics: Legend: BB = Bollinger band  U/DTL = up/down trend line MACD = Moving average convergence/divergence H&S = Head-and-shoulders formation DMA – Daily moving average Technical Comment Analysis Gold is again challenging resistance from the 38.2% Fibo at $1,205, with the doji formation indicating indecision.  The 7 DMA at $1,201 is pushing higher, which points to maintained short-term upside pressure.  The stochastics and MACD are both heading higher – a sign of sustained upside strength – but momentum has turned back lower, confirming maintained resistance above the 38.2% Fibo.  The convergence in the BBs has paused. This sign of reduced breakout pressure indicates further consolidation.   Other factors: Beijing’s cut to the deposit rate will free up liquidity in the banking sector, which should spur lending in the real economy. Still, there may be an initial boost  to physical purchases driven by confirmation of sustained economic weakness especially since the government has been promoting physical gold purchases as a hedge against currency fluctuations. US dollar volatility continues to inject indecision. We continue to feel that, with the potential for an early rate cut by the FOMC having diminished, the dollar may have got ahead of its fundamentals. Should we see a further downside correction, we would expect gold to gain renewed upside momentum to challenge resistance below the key psychological $1,300 level. With equities still on an upward roll, the opportunity cost of holding gold remains high. But should the Chinese increase in securities regulation have a knock-on effect on global equity markets, we would expect renewed upside from safe-haven demand – gold should be considered a relatively cheap one. The situation in Greece continues to foster safe-haven demand, despite its successful payment to the IMF – there is growing speculation about a near-term default goven that two more IMF payments are due in May totalling nearly 1 billion euros. Conclusion Gold continues to consolidate in its sideways range, keeping us neutral, while it challenges resistance from the 38.2% Fibo, which has been capping prices.  We will look for the rising short-term DMAs to trigger a break higher for confirmation of sustained short-term upside pressure. We would then turn neutral-positive and would look for a shift higher to target the previous UTL and 100 DMA on a break above the 38.2% Fibo, as a signal of renewed buying strength.  A break below the DMAs, however, would signal a shift in short-term pressure to the downside, turning us neutral-negative and opening up a re-test of support above the February low at $1,190. All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.

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