Gold In A New 'Bullish Regime', Biased Towards 'Good News' - Orchid Research
Editor's Note: Get caught up in minuteswith our speedy summary of today's must-read news stories and expert opinions that moved the precious metals and financial markets. Sign up here!
(Kitco News) - The yellow metal’s move above the $1,400 an ounce level could be a sign of a new “bullish regime,” said Orchid Research while pointing to gold’s relationship to the U.S. dollar.
Gold’s massive move higher last week was triggered by a dovish Federal Reserve, with markets pricing in a 100% chance of rate cut in July, the bullish research firm noted.
“In line with our expectations, the Fed signaled a dovish turn and a temporary end of the tightening cycle. This pushed the dollar and U.S. real rates sharply lower … While the 10-year US TIPS yield dropped to its lowest level since November 2016 at 0.27%, the DXY dropped to its lowest since March 2019 at 96.63,” Orchid Research said in a Seeking Alpha post on Wednesday.
One of the most important developments for gold has been confirmation of how the metal reacts to the U.S. dollar fluctuations, the firm said.
“Gold has become increasingly more sensitive to the fluctuations of the dollar since the start of the month while the dollar has been on the weak side,” Orchid Research stated. “Although the dollar was stronger over February-April, gold spot prices did not fall markedly because the correlation between the two variables dropped.”
The firm concluded that gold has been reacting stronger to when the dollar drops, which pushes the precious metal’s prices up, and showing less of a reaction when the dollar rises.
“GLD [SPDR Gold Shares, the world's biggest gold-backed ETF] has entered a bullish regime in which good news impacts more positively its price than bad news impacts negatively its price,” the firm wrote. “At this juncture, gold spot prices metabolize very positively bullish factors whereas they tend to become insensitive to bearish forces.”
Orchid Research is “comfortably long for the long run,” projecting for gold as well as the GLD to “fly higher in the coming weeks and months until buying pressure becomes exhausted.”
On Wednesday, gold saw a pause in its recent rally but remained above the $1,400 an ounce level. August Comex gold futures were last at $1,412.20, down 0.23% on the day.
The session’s price action was defined by “some profit taking from the shorter-term futures traders and chart consolidation are featured after prices hit a six-year high of $1,442.90 in August futures on Tuesday,” said Kitco’s senior technical analyst Jim Wyckoff.
Wyckoff added that bulls still have the overall technical advantage, with the first resistance seen at $1,427.90 and first support at $1,410.