| Short Term: |  |
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| Medium Term: |  |
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| Long Term: |  |
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| R1 | 1,359 2016 high (June) |
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| R2 | 1,400 Key resistance |
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| S1 | 1,256 50 DMA |
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| S2 | 1,253 20 DMA |
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| S3 | 1,200 Psychological level |
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| S4 | 1,050 Medium-term support |
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| S5 | 1,046 2015 low |
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| Legend: DTL = Downtrend line / UTL = Uptrend line DMA = Daily moving average. Useful because they often correspond to support or resistance levels. The slope of the moving averages is also important because it shows if the market can be supported on the upside (rising moving averages) or pressured on the downside (falling moving averages). The momentum index allows us to determine whether current momentum is positive or negative. We use momentum with a parameter equal to 10, corresponding to the 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 in motion (up or down) and its strength (strong or weak). |
| AnalysisGold surged to a fresh 2016 high today after earlier consolidation; $1,300 level is likely to become a strong support level. Gold’s key daily moving averages continue to point higher, suggesting that they could provide further upward pressure. On the upside, the challenge for gold is to move toward $1,400, the next critical resistance level. On the downside, a break below $1,300 could pressure it toward the 20 DMA, a break of which would indicate a negative swing in sentiment, with further downside potential toward the May low.
Macro drivers Gold powered to its highest since March 17, 2014, at $1,359, following the UK’s vote to leave the EU. This caught financial markets by surprise because most investors had expected to UK would remain in the EU. This is sending shockwaves across the financial markets, with all the risky asset classes such as equities heavily down and safe-haven vehicles such as government bonds, gold and silver steeply higher. The UK vote is driving FX volatility higher. The pound fell more than 10 percent again the dollar after the vote, its lowest since 1985. The sell-off in equities is pushing key funding currencies such as the yen strongly higher – the dollar broke temporarily below 100 against the yen, its lowest since November 2013). ETF investors are expected to boost their physical holdings following the vote. According to our estimates, they have just accumulated 7.3 tonnes of gold so far this week after buying 25 tonnes in the previous week. But we expect to see strong inflows in Monday’s ETF daily report. Speculative activity is probably behind today’s significant price increase. But with the net speculative length already at an all-time high, we wonder whether speculative buying will be sustainable. Still, we acknowledge speculators’ tendency to overshoot and will pay close attention to tomorrow’s COT report. Investors currently see gold as a currency – it is rising alongside other safe-haven currencies such as the dollar and the yen. Gold’s upside potential will be dependent on the degree of uncertainty and instability stemming from the Brexit as well as the ability of central banks to provide a co-ordinated solution to calm the storm in the financial markets. ConclusionIn line with our expectations, gold set a fresh 2016 high although the rally was quicker and stronger than expected given our view that the UK would remain in the EU. Gold is currently enjoying a “white Friday” after the vote while risky assets are experiencing a typical “black” one. We think this risk-off environment will persist in the coming days until central banks provide a co-ordinated package of measures to calm the financial markets, in turn triggering some profit-taking in gold. |
