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31 Oct 2017
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Gold retesting 50-day moving average - PM Bulletin
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Gold and silver break out of downtrend - PM Bulletin
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FOMC Minutes Released Tonight - Video Update
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US dollar - correcting or recovering?
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Gold has had a difficult four weeks. But could August’s upside break herald better times to come?

Gold was firmer in early trade this morning, adding to gains made on Friday. This rally comes after a torrid four weeks for the precious metal which saw prices fall sharply. In early September gold topped $1,350 to hit its highest level since August 2016.The question now is if the yellow metal has turned a corner and is now beginning to make back the losses made over the past month.

But first it’s worth supplying some context and noting that gold has performed pretty well over the past couple of years. In early December 2015 gold fell below $1,050 for the first time since February 2010. Back then there was a fair amount of speculation (even from gold bulls themselves) that gold could break below $1,000 and go on to retest support around $800. That didn’t happen and technically it soon became apparent that gold was oversold. In fact, gold soared over 20% in the first two months of 2016 and was the stand-out commodity over that period. The rally coincided with concerns over the junk bond market, the first Fed rate hike since June 2006 and an unexpected yuan devaluation which triggered a sharp sell-off in global equity markets. The yellow metal made further gains in the first half of that year, pushing above $1,350 by the end of June. But then it began to decline as it became apparent that the UK’s surprise vote to leave the EU was not as damaging to financial markets as many had predicted. Then we had the US Presidential Election. Trump’s shock victory saw gold spike higher - for an hour or two. There followed a sharp sell-off which saw the vast majority of gold bulls capitulate until we hit an oversold condition in mid-December. Even then (just like the year before) it felt as if gold could have further to fall. Following the Indian government’s ban on 500 and 1,000 rupee notes, there was speculation that it may then curb gold imports which would pull out a vital support from physical demand. That didn’t happen, but then the Fed raised rates for the second time in 12 months, and forecast that it could tighten by an additional 75 basis points over 2017 - 25 basis points more than generally anticipated. Despite this gold managed to consolidate - even as the US Dollar Index hit a 14-year high at the beginning of this year.

Gold then made gains over the first nine months of this year, helped by a sell-off in the dollar and safe haven demand as tensions rose across the Korean peninsula. However, it hasn’t been plain sailing and there have been a number of significant pull-backs along the way. The latest has come over the last four weeks as geopolitical tensions have eased somewhat and the dollar has put in a corrective bounce. So what now? Well, it looks as if the crucial move came late this summer. This was when gold finally broke above its long-term downward-sloping trend line from the 2011 high. As we can see, gold powered higher after it broke this line of resistance although it subsequently pulled back. This could simply be a period of consolidation as investors once again respond to a steadier dollar and reduced worries of an outbreak of hostilities between the US and North Korea. If that’s so, then the chart trend line should now act as support. But gold bulls will be hoping that this area won’t be retested. Instead they will be looking for consolidation above $1,280 and another leg higher. This could well happen, although we may need to see a resumption of the weak dollar trend to kick start the move.



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Posted by David Morrison

Category: PM Bulletin

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