GOLD TODAY: Consolidates near recent highs

Jan 18, 2018 - 9:56 AM GMT
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GOLD TODAY - gold research and technical analysis

Analysis

  • Gold is consolidating after gains stalled at $1,344.65 per oz on Monday January 15.
  • The stochastics have crossed lower while short-term momentum has stalled; the RSI at 62 has eased from an overbought 74 at the start of the week.
  • Gold has filled the outstanding chart price around $1,340-43 per oz from September, which will clear the way for further gains.
  • Support is now seen around $1,322 per oz, where resistance was seen in early January, and the 20 DMA has moved up to $1,312 per oz.
  • Additional support is seen at $1,300 per oz and around $1,285 per oz from the 100, 55 and 40 DMAs.
  • Resistance is seen at the 2017 high at $1,357 per oz ahead of the July-2016 high at $1,375 per oz.

Macro drivers
Net length among Comex speculators rose for a fourth straight week, increasing 40,020 contracts or 25% because a sizeable 47,733-contract build in gross longs was only partially offset by a 7,713-contract build in fund shorts.

ETF holdings have been stable so far in 2018, they total 2,122 tonnes after they increased 174 tonnes in 2017.

Rising real interest rates and equity market strength are boosting risk appetite, reducing the appeal of haven assets. The Bank of Canada raised its base interest rate by a quarter point to 1.25% on Wednesday January 18. But despite robust growth, Governor Stephen Poloz expressed concern about the negative ramifications for the economy if the US withdraws from the North American Free Trade Agreement.

Despite its heady ascent and recent mainstream launch on major exchanges, Bitcoin prices have been extremely volatile recently following reports the South Korean government could ban the cryptocurrency. Excess volatility and tax/compliance issues may deter some investors.

There could be additional delta-hedge related buying, there are currently sizeable call-option positions at various strikes between $1,350 and $1,400 per oz.

Recent data suggests the December price correction was well received by the physical market. Gold imports into India increased to an estimated 84 tonnes in December from 55 tonnes in November. Imports totaled 907 tonnes in 2017 as a whole, up 44% on 2016 volumes. Similarly imports into Turkey increased to 49.2 tonnes in December from 14 tonnes in November. They totaled 370 tonnes in 2017 versus 106.1 tonnes in 2016. Demand is expected to remain supported over the short term due to numerous auspicious days for marriage in the Hindu calendar and from purchases to mark Lunar New Year on February 16.

The latest trend reports from the World Gold Council, however, show global identifiable gold demand recorded its worst third-quarter since 2009 amid weak ETF demand and slowing jewelry demand in India due to tax and regulatory reforms. Identified global demand in the January-September period was down 12% on an annual basis.

Despite disruptions at the giant Grasberg mine in Indonesia and the impact of environmental inspections in China, global mine production has been in line with year-ago volumes. Production will remain supported in the current quarter, while several mine projects are due to enter production.

Conclusion
Gold is consolidating above $1,320 per oz while the dollar has made a modest rebound. An element of profit-taking is unsurprising given the scale of speculative buying in recent weeks. The absence of any significant ETF-related buying, however, suggests investors appear increasingly complacent in wider markets, which risk sharp corrections. As a result we maintain a positive outlook for gold, although a mix of consolidation/long-liquidation may be necessary before prices push higher.

Short term: Up
Medium term: Up
Long term: Down
Resistances:
R1 1,205 DTL from all-time high
R2 1,275 200 DMA
R3 1,291 100 DMA
R4 1,300
R5 1,312 20 DMA
R6 1,375 Jul 2016 high
Support:
S1 1,312 20 DMA
S2 1,300
S3 1,299 UTL Jan/Mar/May 2017 lows
S4 1,275 200 DMA
S5

S6

1,263 26 Jul low
1,214.30 9 May low
Stochastics:
Crossed lower
Legend:
BB – Bollinger band
ETF – exchange traded funds
HSL – horizontal support line
SL – support line
MACD – moving average convergence divergence
DTL – downtrend line
UTL – uptrend line
H&S – head-and-shoulder pattern
RSI – relative strength index

 

All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.