Gold tests bulls resolve

Last week following dovish comments from New York Fed President Williams gold prices traded above U.S.$1450. Less than a day later a spokesman for the New York Fed “clarified” Williams comments saying they were not about immediate policy direction.

If you found last week’s dovish Fed message followed by the back tracking in follow up news articles confusing you are not alone.

Possibly the mixed messages are a reflection that not all Fed members agree with the need to deliver an aggressive 50bp rate cut at this point of time. It probably also reflects a concern that following the Williams comments which resulted in the market pricing a 70% chance of a 50pb cut, the actual impact upon delivery of 50bp would be underwhelming.

Technically the same confusion is evident in the gold chart.

After completed a five-wave “abcde” triangle type corrective sequence at the 17^th July, U.S. $1400 low and surging through the top of the triangle pattern last Thursday, the signs were promising. However, the rejection candle that occurred on Friday from the $1453 high combined with the bearish divergence evident on the RSI has been a set back to the bullish case. In normal times, I would be thinking long and hard about cutting long gold exposure in expectation of a short-term retracement back towards the 1375/1355 support and bullish reassessment zone.

Making the decision less clear cut, tensions between the U.S. and Iran continue to escalate, and with market pricing set at more reasonable levels, there is room for both the ECB and FOMC to deliver a dovish surprise at their upcoming meetings.

In summary, despite the possibility that the current pullback has further to go, I feel that the uptrend in gold is likely to re-establish itself with potential towards the next upside target of U.S. $1480/1500.

Source Tradingview. The figures stated are as of the 23rd of July 2019. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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