Market Spotlight: A Major Base For Gold
Comment of the Day

June 05 2019

Commentary by Eoin Treacy

Market Spotlight: A Major Base For Gold

This note from Credit Suisse may be of interest to subscribers. Here it is in full:

Eoin Treacy's view

Here is the full article:

Gold weakness following the completion of a top in April has been repeatedly contained by support from its now 200-day average at $1266.62 (as well as essentially its uptrend from last summer), and the subsequent recovery has seen a minor base complete above $1303. This sees the near-term trend turn higher again, opening the door to a fresh look at the $1347 high for the year,

Whilst the $1354/81 should be clearly be respected, this range of the past five years is beginning to look increasingly like a large basing structure. Only above $1381 would see this confirmed, but I this were to be the case, we would expect this to act as the platform for a significant bull trend. Immediate resistance on such a break would be seen at the August 2013 high at $14334, ahead of the 50% retracement at $1484 and eventually what see as tougher resistance at $1522/27, the “neckline” to the 2011.2013 top. Support at $1287 needs to hold to keep the immediate risk higher.

For gold to achieve such a major base, we expect this probably gets driven by either a major “risk off” event (which may have clearly already started), a sharply weaker USD (possible also starting), or a further sharp decline in 10yr  US Real Yields although at present, the latter continues to hold its key resistance 0.35%.

Gold’s rounding base formation characteristic looked like it was going to be resolved on the upside in the first quarter of last year. That was not to be and the subsequent sharp drawdown, reminding everyone of the volatility the gold market is known for.

The price pulled back sharply into the Autumn low but It has since stabilised and is now bouncing from the region of the trend mean. It has now broken the sequence of lower rally highs evident since the February peak and clear downward dynamic will be required to question current scope for a further rally towards the upper side of the base formation.

I concur with the above article that a sustained move up and out of the base formation will be required to confirm a return to medium-term demand dominance but the action of the last few days is positive enough to improve the potential for that outcome.  

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