09 August 2016 at 10:47 GMT
- Short-term traders happy to play tight range
- Outside drivers like yields and USD to determine direction
- Bullish case for gold remains as long as yields are very low
Gold, as ever, is highly sensitive to the vagaries of the dollar. Pic: iStock
By Ole Hansen
Gold has traded very quietly so far this week with short-term traders happy to play the tight range established after the selloff last Friday. The stronger-than-expected US job report last Friday halted the latest attempt to extend what have already been a significant rally so far this year.
While dovish actions from several central bank continue to attract demand from real money investors the continued and strong job generation in the US has prevented gold from breaking higher at this stage. With the peak summer holiday season being upon us activity is expected to slow down with the direction increasingly being determined by outside drivers such as yields and the dollar.
Gold dropped on Friday as bond yields and the dollar both rose in response to the stronger-than-expected US job report.
Demand for exchange-traded products backed by gold picked up during the past couple of weeks after stabilising in the aftermath of the Brexit vote. Total holdings according to Bloomberg have risen by 574 tonnes or 40% so far this year. The bullish case for gold remains intact as long demand from investors seeking alternatives to low or negative bond yields persists.
Continued demand for ETPs was seen during the May selloff which was led by hedge funds scaling back a record net-long futures position. This helped establish the floor at $1,200/oz from where the rally before and after the Brexit vote continued.
Gold has found some support at $1,330/oz but the combination of the failure to reach a new high last week and the break below trendline support (blue line) has increased the risk of a deeper correction towards the $1,310 to $1,315 area.
Source: Saxo Bank
– Edited by Clare MacCarthy