GOLD TODAY – Odd behaviour

Otmane El Rhazi from The Bullion Desk.

Short Term: Medium Term: Long Term: Resistances: R1 1206 38.2% Fibo R2 1210 R3 1215 Inverse H&S neckline R4 1224.40 Recent peak R5 1225.40 50% Fibo R6 1255.40 Oct high R7 1307.90 Jan high R8 1323 Aug peak R9 1345.30 July peak R10 1388.70 March & 2014 peak Support: S1 1199 21 DMA S2 1184 Apr 14 low S3 1178.60 Mar 31 low S4 1174.80 Recent low S5 1174 61.8% Fibo S6 1167.50 Jan low S7 1146.80 Dec low S8 1131.60 Nov low Stochastics:Choppy Legend: R/SL= Resistance/support line UTL = Uptrend line BB = Bollinger band Fibo = Fibonacci retracement line Technical Comment Analysis The downward trend that has dominated the market since the January high has been broken but the initial rebound was steep and unsustainable. Prices have since consolidated but they are doing so in a choppy fashion. The recent pullback was quite severe – as was the rebound, but that has now stalled too. There is a potential inverse H&S pattern, which has its neckline at $1,215; if triggered, the target would be around $1,294. That said, the neckline seems to be acting as a strong resistance line.   The stochastics have unwound their mid-March strength but have been quite choppy recently – for now they are pointing lower.  On balance, we see the rally in the second half of March as the first up leg. The second up leg stalled but has now been consolidated – we wait to see what follows this erratic period of consolidation, which suggests considerable indecision.  Macro Factors The dollar had been a key driver but the fact gold has failed to latch on to the dollar weakness in recent days suggests other forces are at work. (We still feel gold may have to play catch-up with the dollar weakness but there is no sign of that happening yet.) The strength of the dollar in recent quarters may well have meant it has run ahead of the fundamentals so we are not be surprised by this bout of dollar weakness. For a long time gold has been out of favour with mainstream investors while equities and bonds have been doing well – so perhaps interest in gold is simply lacking for now. That may change if equities start to correct, if technology shares in the US have started to weaken recently and if the other bastions of safe investment – treasuries and bunds – may also be set to correct. German bunds have started to show weakness in recent days. Investors may soon be in need of a safe haven and gold could be seen as a cheap one. Conclusion Gold’s ignoring of the recent dollar weakness is surprising but it highlights how uninterested investors are. If/when investor interest returns, gold may have some catching-up to do. All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.

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