GOLD TODAY: Another post-Fed relief rally

Short Term:
Medium Term:
Long Term:
Resistances:
R1 1,191.60 Oct 2015 high
R2 1,195 Long-term DTL (Oct 2012/May 2016 high)
R3 1,223 40 DMA
R4 1,228 20 DMA
R5 1,249 50% Fibo (Jul 2016 high>Dec low)
R6 1,260 200 DMA
R7 1,284 Lower line Jul>Sep flag
R8 1,286 Long-term DTL (all-time/Oct 2012 high)
R9 1,375.25 High so far
R10 1,380 38.2% Fibo (Sep 2011 high > Nov 2015 low)
R11 1,388.70 High Mar 2014
R12 1,434 High Aug 2013
Support:
S1 1,329 UTL Jan-Oct 2016 rally
S2 1,261 200 DMA
S3 1,230 50% Fibo Nov 2016 high>Dec 2016 low
S4 1,232 20 DMA
S5 1,223 40 DMA
S6 1,218 50% Fibo 2016 rally
S7 1,205 100 DMA
S8 1,193 DTL Oct 2012/May 2016
S9 1,181 61.8% Fibo 2016 rally
S10 1,164 50% Fibo Dec 2015 low-Mar 2016 high
S11 1,145 DTL Aug 2013/Mar 2014
S12 1,143 Mar 2015 low
S13 1,112.50 Jan 8 peak
S14 1,086 1999-2011 50% Fibo
S15 1,046.40 Dec 2015 low
Stochastics:Bullish
Legend:

BB – Bollinger band

DMA – daily moving average

DTL – downtrend line

Fibo – Fibonacci retracement level

R/SL – resistance/support line

UTL – uptrend line

Analysis

  • A modest relief rally is underway in gold after the Fed’s outlook was little changed from December’s meeting.
  • However gold has stalled ahead of the 20 DMA, currently at $1,228 per oz, and the longer upper shadow seen so far on today’s candlestick implies overhead selling pressure.
  • The stochastics have turned higher, although the fast line does suggest momentum is struggling.
  • Resistance above is seen around $1,240 per oz where prices stalled in early February, and towards the 200 DMA at $1,260 per oz.
  • Further support is seen at the 100 DMA ($1,025 per oz), with additional support seen around $1,193 per oz, which marks the 50% Fibo of the 2017 rally from the December low.
  • Additional support is seen around $1,180 per oz where support was found in late January.

Macro picture 

As expected the Fed raised its benchmark lending rate by 25-basis-points, but the post-meeting response by markers suggest Fed Chair Yellen’s testimony was less hawkish than expected as the Fed maintained that three rate rises were appropriate for 2017 and that the central bank was willing to tolerate inflation above its 2% target in order to sustain economic momentum.

ETF holdings, basis the funds we monitor, have risen in recent days as dip-buying has emerged. Holdings currently total 2,040 tonnes, just below their recent peak of 2,049 tonnes, which suggests investors still view gold as a portfolio diversifier. 

The net length among Comex speculators dropped by 30,113 contracts or 18% in the week to March 7. There was a clear shift while markets move to price in a rate rise at the March FOMC,  with speculative investors carrying out long liquidation and short selling.

Production at the giant Grasberg mine in Indonesia remain halted following a dispute between owner Freeport-McMoRan and the Indonesian government.  However Freeport has announced plans to restart operations at Grasberg later this month. 

There have been stronger signals from the physical market recently.  Recent data signals a pick-up of imports into India, which increased to 96 tonnes in February, more than double year-earlier levels, and compare with an average of 77 tonnes per month on a rolling three-month basis. Consumer spending has rebounded after the government’s decision to withdraw high denomination currency notes in November and as stocking is seen ahead of the upcoming wedding season. Similarly, imports into Turkey have averaged 14 tonne per month in January-February compared with an average of 8.8 tpm in 2016, which signals improving demand in the Middle East. 

According to the WGC, global gold demand gained 2% year-on-year to a three-year high of 4,309 tonnes in 2016. Investment demand both from ETFs and physical retail investors rose a strong 70%, which more than offset weaker jewellery demand, which fell 15% year-on-year.

Conclusion

A modest relief rally is underway in gold. This is a recurrent feature with gold rallying by an average of $115 per oz over a seven-week period after the two previous Fed meetings, and would suggest a price target above $1,300 per oz. While the results from yesterday’s Dutch general election may temper concerns about populism in Europe, the recent pick-up in inflation indicators and improved demand from the physical sector should support an upside price bias across the short to medium term.

All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.