Fed fires gold rally

Back in early April, we reported on the news that China and Russia had aggressively been accumulating gold. Both countries are rivals of the U.S. and noted critics of the status that the U.S. dollar enjoys as a global/reserve currency. By adding to gold reserves, it provides diversification away from American assets.

While their holdings of gold are long term in nature, one can’t help but think that the Chinese and Russian authorities who have overseen gold purchases will today have a smile on their face after gold overnight traded above $1390, to its highest level since March 2014.

Shortly after writing our bullish article on gold in April and despite the events in early May which were supportive of gold including an escalation in the U.S. –China trade dispute, equity market volatility and plummeting interest rates, gold remained becalmed.

After becoming frustrated by the lack of movement, I elected to take profit on my existing long gold trade. Of course, literally hours after doing this, President Trumps announced that he would impose tariffs on imports from Mexico, which proved to be the catalyst for gold to wake from its slumber.

Despite the U.S. since confirming it would not impose tariffs on Mexico, gold has not looked back. Yesterday’s dovish FOMC meeting has inspired another leg higher for the yellow metal. As a reminder, gold tends to perform exceptionally when the Fed is cutting interest rates and when the U.S. dollar is falling.

Technically, the daily close above critical resistance $1365/75 is a bullish development which effectively opens the way for the rally to continue towards $1500. I would expect gold to find support on pullbacks towards $1375/55 and providing gold remains above $1340 a bullish bias will remain in place. 

In short, we are biased to buy dips in gold towards $1375/55 using $1340 as the assessment level. The upside targets are for a move towards near term resistance at $1425/35 initially and then onwards to $1480/$1500.

Source Tradingview. The figures stated are as of the 21st of June 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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