XULF Weekly Gold Report
Last week was another week of sideways movement for gold showing good resilience against strong US Retail Sales and Jobless Claims. On Tuesday it looked as though the bears were finally getting a grip of this market as they forced down through a couple of support levels in the $1370’s to print a low of $1365.32. The fundamentals for gold are certainly bearish but this is being countered technically by the bulls wanting to push a bear trend correction and this is creating an equilibrium just under the $1400 level. The widely used term ‘tapering’, referring to the anticipated stimulus slowdown, has negative connotations for gold as the process should only be conducted in the presence of a healthy US economy and it will strengthen the US dollar making gold more expensive in other currencies but simultaneously gold is in demand to some degree because of the uncertainty of how the economies and financial markets will react when the tapering begins. However the Fed may continue with the bond buying for longer than expected and only withdraw when there are signs of inflation which would be ideal for gold as the removal of one catalyst will be replaced by another. Therefore the outlook for the rest of the year will be largely influenced by the presence of three factors; stimulus, uncertainty and inflation and taking into account these environments never seem to be far away gold should put up a good fight in the long term.
The weekly chart shows that gold could be close to deciding which way it wants to move from here and break out the $1350 to $1420 range. I have referred to the momentum indicator in recent reports as it is appropriate and very useful given gold’s circumstances at present. The indicator is pushing against its own bearish trendline which could prove to be a pivotal moment. If we see a break on the momentum indicator this would be bullish as it would be characteristic of the current trend having weakened and that the market is poised to reverse. On the contrary if we see a bounce on the indicators trendline expect to see more declines as the bulls lose confidence in trying to revive this once beloved commodity.
In the short term the best way to trade this market, taking into account the lack of direction, is to buy at support and sell at resistance. Support and resistance levels are formed when a price level receives a higher volume of buying or selling and this is often displayed by long shadowed candlesticks especially hammers and shooting stars. Bear in mind these levels on this 1 hour chart are only minor support and resistances as they have only had one instance of higher volume but nonetheless can be useful to capture a few dollars of profit. Look to sell at the yellow resistance and buy around the green support lines but be mindful of any news that may be moving price towards these levels because if the move is backed by news we could see price knock down these levels. If price approaches either of these levels in an absence of news and economic numbers then there is a stronger case for applying this tactic.
Important economic releases to watch out for this week include the German ZEW survey and US Inflation data on Tuesday. On Wednesday there is a German 10 year bond auction that will garner close attention and affect EUR/USD and at 19:00 GMT the FOMC express their views on the US economy and will give more clues as to when the tapering may begin or under what circumstances they will begin to act. There is German and US manufacturing along with US Home sales data Thursday and on Friday Bank of Japan’s Governor Kuroda speaks at a press conference.
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