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Gold Prices Look to Consolidate the Breakout

Exchange rates

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Gold prices are around $1772 / an ounce at the time of writing on Tuesday and analyst Richard Perry of Hantec Markets says the market remains cautious of pushing towards fresh highs.

If last week was all about the breakout, it would appear that this week is all about consolidating the move.

Since the original March rally tailed off in mid-April, it has effectively taken more than two months for the bulls to make their next move.

However, with several false upside dawns in that time, perhaps it is understandable that the market is taking this breakout with caution.

We are also cautious with our positive outlook on gold. Holding above $1744 will now be a key gauge as to the outlook of the market.

Gold prices

This breakout above $1764 (the old May high) has been consolidated in recent sessions, but the signs are encouraging for the bulls.

Previous moves higher in May and early June came with wilting momentum. However, on this occasion, we see RSI pulling decisively above 60 (the highest since April), Stochastics holding bullish configuration and MACD lines tracking higher.

A three week uptrend lends support at $1756 today and we would look to use supported weakness (holding above $1744, but ideally above the uptrend) as a chance to buy.

The rally high of $1779 from last week is a multi-year high, but if the bulls can continue to build support above $1744 then a move to $1795 (the key 2012 high) is very likely.

The hourly chart reflects a mild consolidation forming, but still holding positive configuration, we prefer another upside break. Below $1744 would defer this outlook, whilst $1720 remains a basis of medium term pivot support.

Major markets are giving mixed signals over the outlook for risk appetite. After threatening to turn corrective in the past week, Wall Street equities staged an impressive rally yesterday.

However, with Treasury yields still struggling around one month lows, and the US dollar finding support (helped by impressive housing data), the sustainability of renewed buying on Wall Street could be questionable.

There is still a dark cloud of faltering progress in the economic re-opening. Fed chair Powell believes that the US is into an important new phase sooner than expected, but when the WHO suggests the pandemic is actually speeding up globally, this is likely to drive continued caution amongst traders and investors.

The dollar is regaining lost ground across the major currencies today and this is just beginning to weigh on equities slightly once more.

This is also lending a consolidation to the breakout on gold and dragging on oil.

Whilst yesterday was a good start to the week for risk appetite, it would appear that today is beginning to see markets swing back the other way. It will be interesting to see what the impact on US Consumer Confidence levels are after the easing of lockdown restrictions have been phased back recently.