| Short Term: |  |
|---|
| Medium Term: |  |
|---|
| Long Term: |  |
|---|
|
| R1 | 1,375 2016 high (July) |
|---|
| R2 | 1,400 Key resistance |
|---|
| R3 | 1,400 Key level |
|---|
|
| S1 | 1,333 20 DMA |
|---|
| S2 | 1,302 100 DMA |
|---|
| S3 | 1,300 Psychological level |
|---|
| S4 | 1,050 Medium-term support |
|---|
| S5 | 1,046 2015 low |
|---|
| Legend: HTL = Horizontal trend line – strong resistance. DMA = Daily moving average. DMAs often correspond to support or resistance levels. Their slope is also important because it shows if the market can be supported on the upside (rising) or pressured on the downside (falling). MMA = Monthly moving average. UTL = Uptrend line 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). |
| AnalysisGold has edged higher after finding some support at its 100 DMA. The return above the 20 DMA is a positive sign, suggesting that bulls are back in charge. Still, the technical picture remains cloudly – the 50 DMA (i.e. the slower moving average) has crossed above the 20 DMA (i.e. the faster moving average), highlighting a bearish crossover pattern. On the upside, gold’s challenge is to return sustainably above the 20 DMA to shore up sentiment and, if so, climb above its year-to-date high. On the downside, we are watching the 20 DMA, a break below which could send the metal back toward $1,300, which corresponds roughly to the 100 DMA. A break of this level would signal the absence of buying on the dips. In this scenario, selling pressure could accelerate en route to $1,250.
Macro drivers Gold is quiet today ahead of the conclusion of the ECB meeting. The metal has enjoyed some upward pressure since last week’s disappointing US jobs report for August, reinforced by weaker-than-expected services data, accounting for 75 percent of the US economy. The market has steadily revised lower the probability of a Fed rate increase in September to 15 percent from 30 percent around the end of August. This has pressured the dollar and US real rates lower, in turn, has exerted upward pressure on gold. Ahead of the FOMC meeting on September 21, Fed speak will have a strong influence on the expected path of the Fed funds rate, indirectly affecting gold. We think Fed members may try to guide the market toward a slightly lower probability for September and a higher one for December, which may boost gold temporarily in the near term. ETF demand for gold has picked up since Monday, with net inflow of 14 tonnes on September 6. Net inflow has been about nine tonnes so far this month compared with 27 tonnes in August and 75 tonnes in July. Lower Fed tightening expectations are likely to boost ETF demand in the near term. Speculative positioning deteriorated in the week to August 30. Still, we remain of the view that spec buying will resume because the Fed is unlikely to raise rates in September – such a move would take the market by surprise and trigger unnecessary volatility. On the macro front, investors will pay close attention to the ECB meeting. While ECB president Mario Draghi is expected to leave its monetary policy stance unchanged, he could deliver important information about possible future actions. This could lead to some volatility in financial markets but gold is likely to be most sensitive to fluctuations in the dollar caused by the repercussions from ECB policy. ConclusionWe continue to think that gold prices will trend higher still in near term, largely driven by lower Fed tightening expectations. Given our view that the Fed is unlikely to move in September, the current probability of a September move is likely to ease further. This should boost gold prices. From a trading perspective, we decided to implement a hypothetical long position following the break of the 20 DMA, setting a stop-loss slightly below the 100 DMA and an initial target at the key level of $1,400. |
