| Short Term: |  |
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| Medium Term: |  |
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| Long Term: |  |
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| R1 | 1,229 20 DMA |
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| R2 | 1,280 200 DMA |
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| R3 | 1,300 Key resistance |
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| R4 | 1,375 2016 high (July) |
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| R5 | 1,400 Key level |
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|
| 20 | 1,229 |
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| 50 | 1,261 |
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| 100 | 1,297 |
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| 200 | 1,280 |
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|
| S1 | 1,203 20 MMA |
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| S2 | 1,150 Key level |
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| S3 | 1,050 Medium-term support |
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| S4 | 1,046 2015 low |
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| Legend: UTL = uptrend line – strong resistance. DTL = downtrend line – strong support. DMA = Daily moving average. The momentum index allows us to determine whether momentum is positive or negative. We use a parameter equal to 10, corresponding to momentum over the past 10 days. Above 0, momentum is positive; below 0, momentum is negative. ADX – average directional index. This allows us to gauge the strength of the current trend (above 20, the trend is strong; below 20, the trend is weak). The combination of momentum and ADX allows us to determine the current trend (up or down) and its strength (strong or weak). |
| Analysis- Gold has rebounded somewhat since the start of the week although it remains below its psychologically important level of $1,200 per oz, suggesting that sentiment has not materially improved. We still believe a lack of energy in the market, which is visible in our monthly chart, has ended the year-to-date uptrend.
- On the upside, gold needs to move back above $1,200 and its 20 DMA to shore up sentiment. If it can, the next key resistance levels are the 200 DMA and $1,300. On the downside, we are watching the $1,150 level, a break of which could result in additional selling pressure en route to $1,100 and, ultimately, the 2016 low.
Macro drivers Gold has attempted to rebound so far this week after falling nearly 2% last week due to improving risk-on sentiment and a resulting fall in safe-haven bids. This week, gold looks a little stronger because macro forces have become slightly more favourable for precious metals from a weaker dollar and lower US real rates. But gold remains vulnerable ahead of the Fed meeting on December 13-14. Any stronger-than-expected US data is likely to raise the probability that the Fed lifts rates soon, pushing the dollar and US real rates higher, in turn exerting downward pressure on the gold price. Looking ahead, we will pay close attention to the ADP employment report today – a precursor to the NFP report on Friday. We expect the US labour market to improve further, which in turn should cement a US rate increase in December. While this could put gold under selling pressure, we expect a renewed strengthening after the FOMC meeting. Investment and speculative flows: ETF holdings – at 2,059 tonnes as of November 29 – are down 104 tonnes or 2% so far in November. ETF investors are set to net sellers of gold on a monthly basis for the first time this year, which might reflect a change in investor behaviour. Speculative positioning dropped for a second straight time over November 15-22, according to the latest CFTC statistics. Speculative positioning is likely to deteriorate further, principally because the Trump euphoria could last longer, prompting speculators to remove their bullish bets on gold. Physicals: The Asian physical market has picked up a little thanks to favourable seasonality and a fall in domestic prices. This should limit the downward pressure on international gold prices. Our next report is due on Monday, December 5. ConclusionDespite the recent price rebound, we remain unfriendly toward gold in the very near term (around one month) following the break below the 200 DMA earlier in November. We expect lower lows in December until the Fed meets on December 13-14. Although we expect the Fed to raise rates at the meeting, the message it delivers could surprise on the dovish side, highlighting key downside risks to the US economic outlook. This could give gold a boost, hence our neutral short-term view (1-3 months). We expect gold strength to resume late in the first quarter of 2017 when the market starts to express doubts about the success of Trump’s policies. We are constructive over the medium term (3-6 months). |
