We will turn bullish with a close above 1700, however we expect to see our long term downside target before any sustainable rally commences.
Our scepticism on Friday turned out to be prescient as the market has fallen back into the downtrend channel and is looking weak again.
We will turn bullish with a close above 1700, however we expect to see our long term downside target before any sustainable rally commences.
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Gold powered higher last night and hit a high around 1680, above the upper channel boundary we have been watching for the last couple of weeks.
However, the market has stalled and looks to be running out of steam here, until we see a break of the previous swing highs at 1683 and 1698 we won't be turning bullish. The trading has been whippy and without any clear heading, with a downward bias, for a few weeks now and we don't yet see anything to change our minds. Gold had a very quiet day yesterday, trading in a $10 range all day. The market is tracking the 20 DMA and still looks technically weak to us even after the recent rally.
There is a well defined down trend channel with upper resistance at around 1670, we are watching this level to see if gold can break out above the channel or whether it will continue to serve as resistance. Gold rallied quite impressively yesterday, though is still trading below the 20 DMA. The resistance at the top of the downtrend channel is coming in at around 1670, as is the 100 DMA, and we anticipate some difficulty for gold breaking through that area.
Despite the bullish price action of the last few days, we remain unconvinced for the bullsih case and expect further downside shortly. A close above 1687 would see us reconsider this stance. Gold has risen steadily since last Thursday's intraday low at 1612 and gapped higher yesterday, a bullish sign. However, volumes have been extremely light due to the Easter holidays and we are viewing the price action with suspicion.
Gold remains below all of the moving averages that we watch and is technically bearish, however a close above 1700 would be viewed as a bullish development. For now, we expect lower prices and our long held target to be hit shortly. Gold continued to sell off hard yesterday, hitting a low of 1612. A couple of weeks back we were looking for another "washout" leg lower before this correction was completed but changed our minds after gold recovered well from 1628, initiating a long postion at 1670.
It is now apparent that this was a classic "bull trap", fooling traders into thinking the correction was over before reversing quickly and dramatically again, "trapping" the bulls in loss making positions. We recognised the danger and pulled our long early and therefore only realised a small loss of $17. Prices are now significantly lower than our exit point and our long standing target for this correction has come back into play, of which our subscribers are well aware. As we thought likely, the release of the FOMC minutes last night precipitated a major move - to the downside.
We have been saying for a couple of weeks how weak this market has looked technically and have not trusted the rallies. This may well be the start of a "washout" move lower, where prices fall dramatically coupled with high volume and sentiment hits rock bottom. We are on the lookout for a point to enter the market long with this in mind. Gold continues to whipsaw back and forth and there are no clear signs that the correction is over. This is the kind of market where positions are stopped out on either side and is very difficult to trade.
Our current position on the sidelines remains the most prudent place to be for now. The new quarter sees fund managers allocating cash to their chosen asset classes in the first few days and it will be interesting to see how this flow of funds affects gold. The first few days of the quarter can often set the tone for the following few months.
The charts remain bearish with gold trading below the 50 and 200 DMAs and tracing the 20 DMA as it moves lower, having crossed through the longer moving averages a couple of weeks ago. We are flat in the market and watching for signs of stability and a bottom before looking to re-enter to the long side. As we still consider gold to be in a long term bull market, we rarely take a short positon, unless the set up is particularly persuasive. |
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August 2021
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