GOLD TODAY: Challenging the February price highs

Short Term:
Medium Term:
Long Term:
Resistances:
R1 1,228 20 DMA
R2 1,249 50% Fibo Jul-Dec sell-off
R3 1,263.90 Feb 27 high
R4 1,292 DTL
R5 1,308
Support:
S1 1,228 20 DMA
S2 1,240.65 recent low
S3 1,210 38.2% Fibo dec-Feb rally
S4 1,195 Mar 10 low
Stochastics:Bullish-to-neutral
Legend:

BB – Bollinger band

DMA – daily moving average

Fibo – Fibonacci retracement level

H&S – head-and-shouder pattern

HRL – horizontal resistance line

R/SL – resistance/support line

UTL – uptrend line

Analysis

  • Spot gold prices are rebounding strongly after the sharp retreat between February 27 and March 10. Prices have climbed back to $1,261.05 per oz. The high in February was $1,263.90; the low on March 10 was $1,195 per oz.
  • The 20 DMA had rolled over to the downside but it has since flattened out. It has yet to turn higher, though.
  • The stochastics are holding up in high ground but they are crossed lower, which suggests some lack of buying interest.
  • We said in a recent report that we saw the sell-off of late as another correction within the overall upward trend – this seems to be the case.
  • We still think gold prices are emerging into a bull market although so far prices have climbed only 12.5% above the December low; a 20% move is deemed necessary to qualify as a bull market. That would require a move to $1,347 per oz, which is still a long way away.

Macro picture

We see the recent sell-off in gold prices as tied to the sudden build-up in expectations for a March US rate rise; with that now out the way, the underlying bullish drivers have returned to the driving seat and have been augmented by the recent pick-up in risk-off trading.

There is more chatter about the reflation trade (or Trump trade) being unwound, especially now that President Donald Trump has failed to get his healthcare reform bill through Congress. Will he struggle to get other reforms through? This could lead to a larger correction although this morning the markets look more settled than they did yesterday. A rebound in other markets and a return to risk-on could be a headwind for gold prices.

But with the UK about to trigger Article 50 and with the French election less than a month away, political concerns look set to grow. Although it looks unlikely that Marine Le Pen will be the next French president, there is no doubt that if she were to win it would likely really spook the markets. So we do expect markets to reduce risk further April 23, the date of the first round of the French election, nears.

Last week’s CFTC data showed funds returned as net buyers, adding 10,214 contracts to their net long position. In the two preceding weeks they had cut the position by 57,760 contracts. Last week saw 9,404 contracts of fresh buying and 810 contracts of short-covering.

Conclusion

We remain bullish for gold and expect safe-haven buying to remain strong ahead of the French election.

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

About Kathleen Retourne

Kathleen has been reporting on commodity markets since 2006. She joined FastMarkets in 2011 and has immersed herself into the metal industry, specialising in LME coverage. Follow her on twitter @kathretourne