Gold shining bright like a diamond
Gold was back above the key $1800 psychological level and within touching distance of its 200-day SMA. Despite real yields rising, the weaker dollar propped up the yellow metal. The outcome of Jackson Hole on Friday could lead to some volatility for gold. If the market thinks the taper timeline will be delayed as a result of softer recent economic data (today’s PMI data was weak) and delta variant flare ups then gold could see a bid. Or alternatively, the FOMC are happy with the progress seen so far particularly in the labour market and feel the high level of vaccinations should blunt the delta flare up, allowing them to be more forthright with clues surrounding an imminent taper timeline. September would be seen as fairly hawkish. The event obviously creates two-way price risks providing opportunities for traders.
Over the medium to longer term I feel there are a number of factors working against gold. Yield moves are skewed to the upside given the Fed and an economy which will return to normality. I do think 10-year yields are mispriced some what due to a variety of technical factors. Additionally, the dollar is in a very advantageous position as it benefits when risk sentiment takes a nosedive or when the Fed moves closer to tapering on strong economic data. It’s not called king dollar for nothing.
Gold has bounced off the upper trend line of its descending channel and 21-day EMA. The 50-day SMA hurdle has been dealt with. However, the 50-day SMA is still below the 200-day SMA, after the death cross in early August. The RSI is peaking its head above the 55 mark (price rallies have stalled previously here). Targets wise, $1750 support would be my first initial downside area of interest and on the upside the 200-day SMA and double top horizontal resistance around $1830. I still like a short the rallies approach, but one will need to remain flexible in the short term, especially if we see a delay in tapering.
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