Gold Is Locked In A Range But A Breakout Is In The Offing
Axi | Feb 22, 2017 10:46
Originally published by AxiTrader h2 Key Takeaway/h2
It's almost the perfect storm for gold right now with risk appetite high as stocks in the US and as a global composite hit new records, as the US dollar remains strong, and as US 2 year rates hold above 1.20%.
But even with this gold negative backdrop prices have held above important support in the $1219/20 region.
Whether its political uncertainty around the Dutch and French elections, general uncertainty about the new US presidential administration and it policies, or whether traders are just buying a call on general uncertainty gold remains bid.
That bid is within a $20/25 range with the tantalising prospect that if side breaks gold is going to go for a solid run in the direction of the break.
h2 What You Need To know/h2After a strong run higher from last year's lows around $1120/30 an ounce gold has performed strongly. But it has stalled recently as the key drivers that underpinned that $100 move higher for gold have turned negative.
That is, the US dollar has stabilised and remained strong, US bonds have remained elevated, and a more sanguine outlook - or perhaps ebullience - has become evident among traders and investors as stocks around the globe have rallied to new record highs.
Gold versus the USD Index, US 2 year rates, and the S&P 500 (latter three price inverted)
Against this backdrop it would be reasonable to assume that the gold would lose its lustre. To be sure, it's tried a few times. Yet gold has remained bid on dips and stayed above the support zone of $1219/20 which was the previous breakout point.
AS I noted in my introduction structural that's like because gold represents a hedge against uncertainty. And likely the are plenty of players, myself included, who see a portion of their portfolio in gold as a prudent hedge against the irreducible uncertainty the Trump presidency offers.
Likewise, if Trump is successful in adding stimulus to an already reasonably healthy US, and in turn global, economy gold may also represent a hedge against future inflation.
That's the rhetorical argument. Looking at the charts adds a little more
Looking at the charts adds a little more colour, and possible direction to the outlook.
On the weekly charts it is clear gold is stuck in one heck of a long term wedge with the parameters between the two lines being $1099 and $1308.
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A break either side would be important.
But one a daily basis, that still leaves plenty of scope for gold to move within those parameters and the parameters of the recent move.
Clearly the uptrend is very steep. That is a warning. But it's also holding. That's a strength.
We can also see that prices have recently been capped around $1245. This reinforces the wedge. It also reinforces what I've been writing lately.
That is gold is outperforming its recent drivers in a material way. But unless either $1219/20 or $1245 breaks it stuck in this range.
On a break, in either direction, the charts suggest a move about the size of the current range. That would bring $1200 and $1270 into the frame.
Have a great day's trading.
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