GOLD TODAY – Challenging resistance and looking bullish but…

Analysis

• Gold prices are rebounding robustly despite having broken support (the bottom of the triangle) two weeks ago.
• The move lower now looks more like a false break.
• Prices have now risen to within striking distance of the top of the triangle at $1,356. There is also resistance at $1,358, $1,367.30 and the the July high at $1,375.25. Clearance of each of those levels will make the market look much stronger. Clearance of the July high would then target the two HRLs on the monthly chart (see inset chart) at $1,388 and $1,434.
• We have said of late that we remain bullish over the medium term but a profit-taking dip cannot be ruled out – we seem to have had the profit-taking dip and the rally is resuming. 

Macro picture

Profit-taking was not surprising but the fact it led to a false break lower shows underlying sentiment remains bullish. Gold prices had until yesterday been holding up well.

The catalyst was more poor US data that prompted the market to reduce its expectations about a September rate rise to 15 percent from 21 percent.

The dollar index has fallen to 94.92 from 96.25 a week ago. 

Physical demand for gold in Asia remains subdued but there are expectations that following a good monsoon this year the Indian harvest will be good, which in turn may well boost buying of gold in India. 

ETF buying continues – 13.8 tonnes were bought yesterday.

Friday’s CFTC report showed long liquidation continued up to August 30 but there was no fresh short selling by funds. This ties in with the view that the market was taking profits. The long position remains elevated so there could be more profit-taking if prices fail to push ahead but it looks as though prices are now rising again now. Needless to say, if prices fail on the upside, the gross short position is also low so short selling could pick up.

We remain bullish overall, though, for the following reasons: 

• High global debt and how can that be dealt with
• US election – will there be another populist result there?
• The likelihood that the US interest rate will remain on hold
• Negative interest rates elsewhere
• Geopolitical unrest
• Potential for broad market corrections, especially in bonds and equities. The VIX at 13 is very low.