TDS: Gold May Need More Equity Weakness To Sustain Rally
(Kitco News) - Goldmay need further weakness in the equity market to retain its October rally,says TD Securities.
Themetal spent much of the summer “in the gutter” as bearish traders piled onshort positions, the firm pointed out a research note late Monday. However, a sharpcorrection lower in equities this month convinced many of these shorts to buyin order to cover, or exit, positions.
“Thisround of short covering did well to lift the yellow metal off the lows, andeven to as high as $1,243.48/oz last week, but we are wary of the staying powerthis latest uptick, especially as the U.S. dollar continues to grind higher,”TDS said.
Goldmay remain around recent highs if sentiment in the equity market “remains onedge,” TDS said. In particular, this could happen if U.S.-China trade rhetoric heatsup again.
“Withthat said, TD Securities short/medium term outlook on gold is slightly bearish,as without equity weakness propping up the shiny metal up, we see little reasonfor the yellow metal to remain north of $1230/oz,” TDS said. “The equitymeltdown has provided a much-needed distraction from a resurgent U.S. dollar,but if the equity fears dissipate, there is little that can prevent theprecious metal market focus from shifting back to the performance of thegreenback.”
Thedollar index is acting as if it wants to test its highs for the year, andChina’s currency remains under pressure. With the Fed remaining hawkish,relative to other central banks, gold could easily revert back to $1,200 anounce again, TDS said. As of 10:20 a.m. EDT Tuesday, spot metal was down $3.80for the day to $1,224.80 an ounce.
“Indeed,key technical support and CTA [Commodity Trading Adviser] selling triggersstand in the $1220-1215/oz region, and breaks of these levels could swiftlybring prices back to $1200/oz,” TDS said.
By Allen SykoraFor Kitco News
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