Gold price languishes, market looks too uninterested

Otmane El Rhazi from The Bullion Desk.

Short Term: Medium Term: Long Term: Resistances: R1 1170-1180 Former support R2 1206 38.2% Fibo R3 1215 R4 1224.40 April peak R5 1225.40 50% Fibo R6 1232.50 Recent high R7 1255.40 Oct high R8 1290 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 1170 May low S2 1167.50 Jan low S3 1162.60 Low so far S4 1150 SL S5 1146.80 Dec low S6 1131.60 Nov low Stochastics:Bullish but converging Legend:R/SL= Resistance/support line UTL = Uptrend line BB = Bollinger band Fibo = Fibonacci retracement line Technical Comment Analysis Gold breached support at $1,180 and $1,170, with prices setting a low at $1,162.60 – this put them within $13 of the SL connecting the November to March lows. Prices have since bounced – the rally reached $1,192.50 – and are now consolidating. The break of the May low at $1,170 did not bode well but, as we said last week, a quick rebound above $1,180 would reduce the damage – this happened briefly but prices are now drifting again. The stochastics are bullish but may be about to cross lower again, which would add downward pressure. Macro Factors Investors remain extremely complacent, which suggests Greece is too big an issue for the EU to let it exit the euro – the so-called Grexit. But it may end up defaulting, with a deal conjured up in the days after a default. Since we still feel investors will at some stage have a greater need for safe havens, gold might well pick up some of that interest, especially while other safe havens such as the German bund, although offering a higher yield now than a few weeks ago, still have potential to correct further. Although gold is not rallying, it is for the most part holding up relatively well. We feel it should be attracting more interest; the fact it is not shows just how out of favour it is, especially in China, where rampant stockmarkets are absorbing investors’ interest. With other asset classes hogging the limelight for now, it may well take a correction in them before investors rotate into gold again – even if it is only as a parking place while the other markets sell off. We hear a lot of chat about equities and bonds potentially correcting and questions being asked about where investors would put their money. Of all the suggestions we hear, nobody seems to be considering gold – we see this lack of interest as potentially bullish but we will bide our time. Conclusion Investors are just not interested in gold and physical demand is weak – it looks as though gold will languish around in low ground until investors once again need a safe haven. Although we are in no hurry to buy, we would get prepared to buy in case newsworthy developments unfold. Overall, we expect the Greece problem is escalate in the days and weeks ahead, which may well prompt more interest in gold. Needless to say, gold could lose what little support it has should a solution be found. All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.

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