Gold 1 OZ (XAU=X) A Likely Slower Grind Higher
- The current gold bull market started in December 2018 and hit its growth spurt a year ago, in May 2019. Spot and futures prices have rallied 30-35% since that time, to the ~US$1,700/oz range, as the COVID-19 shock brought forward constructive gold market themes that were already brewing due to US-China trade tensions and global manufacturing slowdown. These bullish tailwinds for gold include: the accelerated Fed policy path to zero lower bound (ZLB) and fresh assets purchases; the global growth recession, underpinning a risk-off and highly uncertain macro outlook; net gold buying from EM central banks; and extreme asset market volatility amid robust investor inflows into gold derivatives and ETFs.
- However as the gold bull market ages during a deep global recession, gold may be prone to sell-offs to the US$1,500-$1,550/oz area in coming quarters, before marching higher again. Unwinds of long gold trades could be prompted by another equity market sell-off given unusually strong gold-equities returns correlations and record gold ETF holdings.
Shayne Heffernan Trade Idea
- “Lower for Longer” interest rates are supportive of Heffx analysts’ positive view on gold. However, there is concern over the large divergence between record strong investor demand for gold and a record weak retail bid for gold (e.g. jewelry). Combined with reduced net buying from the official sector and a potential increase in gold recycling for the rest of 2020, We believe prices may make a slow grind higher but generally hold between US$1,600-$1,700/oz, rather than quickly spike to the US$1,850-$1,950/oz area. In turn, a global growth and EM recovery in 2021 could be what supports the next leg higher towards US$2,000/oz.
- Overall, we remain medium-term bullish. Forecasts for Q2 average gold prices are upgraded to US$1,710/oz and 2020’s average lifted from US$1,640/oz to US$1,680oz, while maintaining 2021’s average at US$1,925/oz.
Why This Matters
The rise in U.S.-China tensions is “the biggest bad news out there,” and gold tends to rally on that.
Trade tensions surged to new levels at the end of the week after U.S. President Donald Trump said on Thursday that he had no interest in speaking to Chinese President Xi Jinping while adding that he could potentially cut ties completely with China. Trump has been calling out China, stating that he is disappointed with its failure to contain coronavirus.
Tensions ramped up further on Friday when the Trump administration announced that it is moving to block shipments of semiconductors to Huawei Technologies from global chipmakers. In response, China said it was ready to place U.S. companies on an “unreliable entity list,” which could include Apple, Cisco Systems, and Qualcomm. China also said it could suspend purchases of Boeing Co airplanes.
Going forward, the U.S.-China issue will once again become a big deal. “I don’t see those tensions improving. If anything, the longer we have any kind of problem with coronavirus, the more it will ramp up that rhetoric between the U.S. and China,” Shayne Heffernan said.
For gold, the next step is to reach the $1,850 an ounce level, which is now just a question of time.
Overall, the bias in prices is: Upwards.
Note: this chart shows extraordinary price action to the upside.
The projected upper bound is: 1,836.04.
The projected lower bound is: 1,685.89.
The projected closing price is: 1,760.96.
A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 7 white candles and 3 black candles for a net of 4 white candles. During the past 50 bars, there have been 29 white candles and 21 black candles for a net of 8 white candles.
Three white candles occurred in the last three days. Although these candles were not big enough to create three white soldiers, the steady upward pattern is bullish.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 87.7350. This is an overbought reading. However, a signal is not generated until the Oscillator crosses below 80 The last signal was a sell 14 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 65.29. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 41 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 234.This is an overbought reading. However, a signal isn’t generated until the indicator crosses below 100. The last signal was a sell 16 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 1 period(s) ago.
Rex Takasugi – TD Profile
PREC.M.XAU= closed up 18.368 at 1,759.368. Volume was 8,900% above average (trending) and Bollinger Bands were 44% narrower than normal.
Open High Low Close Volume 1,742.677 1,764.460 1,742.677 1,759.368 30,044
Technical Outlook Short Term: Overbought Intermediate Term: Bearish Long Term: Bullish
Moving Averages: 10-period 50-period 200-period Close: 1,715.30 1,654.52 1,555.75 Volatility: 17 30 20 Volume: 3,004 601 150
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
PREC.M.XAU= is currently 13.1% above its 200-period moving average and is in an downward trend. Volatility is low as compared to the average volatility over the last 10 periods.
Our volume indicators reflect very strong flows of volume into XAU= (bullish). Our trend forecasting oscillators are currently bearish on XAU= and have had this outlook for the last 3 periods.
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