GOLD TODAY – Looking vulnerable again unless…

Otmane El Rhazi from The Bullion Desk.

Short Term: Medium Term: Long Term: Resistances: R1 1206 38.2% Fibo R2 1211 Inverse H&S neckline R3 1215 R4 1224.40 April peak R5 1225.40 50% Fibo R6 1232.50 Recent high R7 1255.40 Oct high R8 1292 Long term DTL R9 1307.90 Jan high R10 1323 Aug peak R11 1345.30 July peak R12 1388.70 March & 2014 peak Support: S1 1211 SL/neckline S2 1185 UTL S3 1170 May low S4 1167.50 Jan low S5 1146.80 Dec low S6 1131.60 Nov low Stochastics:Choppy but bearish Legend: R/SL= Resistance/support line UTL = Uptrend line BB = Bollinger band Fibo = Fibonacci retracement line Technical Comment Analysis Gold has pulled back from its bullish breakout two weeks ago. Prices seem to be finding some support from the UTL at $1,185 and below there is a band of support running down to $1,170 – the May low. Rebounds therefore still have a habit of stalling so prices seem in no hurry to rally; that said, they generally seem to be well supported in the $1,170-1,180 area.  The stochastics have become increasingly choppy recently so we cannot read too much into them. For now prices seem to be stuck in a $1,170-1,230 range. Macro Factors For a long time gold has been out of favour with mainstream investors while equities and bonds have been doing well – so continued equity strength remains a headwind for gold, as does the rebound in the dollar.  With other asset classes hogging the limelight, it may well take a correction in them before investors rotate into gold again – even if only for a parking place while the other markets sell off. There is a potential ‘W’- shaped bottom in place in gold, but as rallies continue to stall and with further outflows in gold ETFs, which are back below 1,600 tonnes again, investors do not seem to be looking to rotate into gold yet.   The market also seems to feel that the dollar has corrected enough so renewed dollar strength may be a headwind for longer; however, a stronger dollar may weigh on US growth and in turn that may well delay Fed action on interest rates. So the markets could be in limbo for a while – if so, gold could remain rangebound for longer; it could also suffer further bouts of long liquidation. The latest CFTC data showed the net long fund position climbed to 122,621 contracts fom 77,440 contracts on 22,933 contracts of fresh buying and 22,248 contracts of short-covering. But this data was up to May 19, which covered the period when gold broke higher – so we wait to see how the long and short positions have changed this week when the data is released on Friday. Conclusion The fact gold prices have stalled again so soon after breaking higher is a disappointment to the bulls. We wait to see if long liquidation has set in this week; if so, gold may well restest support again. The strong dollar is also likely to weigh on prices – it may well take a pick-up in safe-haven demand on an equity correction or over Greece to break gold out of its sideways trend. All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.

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