Gold’s Easter rally set for consolidation

Gold has rallied strongly during the Easter period on raised global political tensions, French election jitters and softer US economic data. The trendline from the 2011 high which was rejected five times last year is back in contention. But with some of those drivers fading, we may see gold consolidate before making another upside attempt.

A weak US job report on April 7, the bombing of the al-Shayrat airfield in Syria with 59 US Tomahawk cruise missiles and raised tensions on the Korean peninsular together with renewed uncertainty ahead of the French election first round on April 23 have all helped provide support to gold.
In addition to this we saw US president Donald Trump make a flip-flop on several core campaign promises. In a Wall Street Journal interview and a subsequent press conference, Trump either shifted or completely reversed positions on a number of foreign and economic policy decisions, including the fate of the dollar, how to handle China and the future of the chair of the Federal Reserve, Janet Yellen.
Two of the current key drivers for gold; US real yields and the JPY have both provided support during this time. Lower US real rates have been triggered by softer US data which have led to fading US rate hike expectations while the stronger JPY has been driven by safe-haven demand and short-covering.
Gold drivers

Hedge funds have been strong buyers of gold futures for the past four weeks. In the week to April 17, they increased the net long by 21% to 140,407 lots, the highest since the US November election. This, however, is still less than half of the record 287,000 lots seen last July leaving plenty of room for additional demand if the mentioned drivers continue to support.
While the market is likely to pause following the latest run up we may still see gold especially against the euro continue to find support ahead of the French Presidential election. The first round on April 23 looks very tight with Emmanuel Macron and the Front-National’s Marine Le Pen neck-and-neck at 22%, A coming-up-on-the-rails Jean-Luc Mélenchon is at 20% and a still hopeful Francois Fillon is on 19%.
The long-term chart shows how gold once again has reached a critical area. The trendline from the 2011 peak was tested and rejected on several occasions last year. The latest rally has taken it back to up to this line with resistance currently at $1,290/oz.
Gold banging against a $1,290/oz resistance
Sport gold - monthly

We maintain a bullish bias on gold and hold onto our end of year forecast of $1,325/oz. The risk of a stronger dollar and successive US rate hikes are fading while plenty of geopolitical risks and light investor positioning is likely to support demand.
In the short-term however we are looking for a correction with the $1,267-61/oz range offering a better level to enter fresh longs.

A short-term correction looking likely

Spot Gold - Daily
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