GOLD TODAY – Increased US political uncertainty may boost prices

Short Term: Medium Term: Long Term: Resistances: R1 1,300 50 DMA R2 1,315 100 DMA R3 1,375 2016 high (July) R4 1,400 Key resistance R5 1,400 Key level Support: 200 1,274 100 1,315 50 1,300 20 1,264 Support: S1 1,274 200 DMA S2 1,200 Key level S3 1,050 Medium-term support S4 1,046 2015 low Stochastics: Legend: UTL = uptrend line – strong resistance. UTL = downtrend line – strong support. DMA = Daily moving average. DMAs often correspond to support or resistance levels. Their slope is also important because it shows if the market can be supported on the upside (rising) or pressured on the downside (falling). The momentum index allows us to determine whether momentum is positive or negative. We use a parameter equal to 10, corresponding to momentum over the past 10 days. Above 0, momentum is positive; below 0, momentum is negative. ADX – average directional index. This allows us to gauge the strength of the current trend (above 20, the trend is strong; below 20, the trend is weak). The combination of momentum and ADX allows us to determine the current trend (up or down) and its strength (strong or weak). Technical Comment Momentum is in positive territory while ADX is firmly above 20, indicative of a potentially strong uptrend. Analysis Gold continues to strengthen, attracted by its steadily rising 200 DMA, leaving the year-to-date uptrend intact for now. Still, a bearish pattern has emerged, namely a bearish crossover pattern, whereby the (short-term) 20 DMA crosses below the (long-term) 200 DMA. This suggests that gold will remain very challenged unless it manages to break firmly above $1,300. On the upside, gold needs to move firmly back above its 200 DMA and, if so, above $1,300 to produce a potentially powerful rally. On the downside, we are watching the 200 DMA – a firm and sustained break below it would signal the end of the uptrend (from a purely technical viewpoint). Macro drivers Gold started the week lower after rallying 1.42% rally last week, supported by positive spillovers from metals due to stronger global growth momentum and firmer risk appetite. Investors will pay close attention to the FOMC meeting over November 1-2, which should shed some light over future US monetary policy. The market sees the likelihood of rate increase in November at just 8.3% but at 68% in November. While we also see a December move as the likeliest scenario, we think that what matters for the future direction of gold prices is the longer-term path of the Fed funds rate rather than the precise timing. In light of positive US macro data – third-quarter GDP rose at its fastest pace since the third quarter of 2014 – the Fed could surprise on the hawkish side by guiding the market toward a steeper expected path of Fed funds rate. Under this scenario, the dollar could strongly rise while US real rates could move higher, prompting some long liquidation in  gold. Another key imminent event is the US presidential elections on November 8. Political uncertainty has increased after the FBI reopened a probe into Clinton emails on Friday, October 28, although the market does not seem to be concerned yet – volatility across most risky asset classes is broadly unchanged. Investment and speculative flows: ETF holdings – at 2,163 tonnes as of October 28 edged 1.93 tonnes or 0.1% higher last week. They are up 30 tonnes or 1.4% since the start of October so they are rising at a stronger pace than in September (27 tonnes) and August (16 tonnes). This bodes well for the year-to-date price uptrend. Speculative positioning improved for the first time in four weeks over October 18-25, according to the latest CFTC statistics. Perhaps the profit-taking of August 30-October 11 has ended. Physicals: The physical market is improving further in India, swinging back to a premium structure, reflecting stronger demand for festival season. Demand in China could pick up in the coming weeks due to favourable seasonality, especially due to lower domestic prices. Conclusion Although gold is under selling pressure today, we remain constructive over the very short term, anticipating a more dovish Fed than the market is inclined to think. As well, increased US political uncertainty should prompt investors to rebuild some risk-unfriendly positions in, for example, gold. Still, a firm break below the 20 DMA would be enough to neutralise our stance or even adopt a negative stance. In the fourth quarter, we are slightly constructive – although the Fed is likely to lift rates in December, we think that the expected path of Fed funds rate will continue to flatten, which should exert downward pressure on the dollar and US real rates, boosting investment demand. Physical buying in Asia should also pick up in the final months of the year.   All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.

The post GOLD TODAY – Increased US political uncertainty may boost prices appeared first on The Bullion Desk.

from The Bullion Desk http://ift.tt/2eelVSv
via IFTTT