Lagos — Consolidation in the gold price is the current order of play, with gold 1-week realised volatility pulling back sharply to 12.9%, and the 5-day average daily high-low price range reduced to just $26. On the daily chart, we’ve seen six consecutive days of indecision portrayed in the price action, with the broad suite of gold players lacking conviction to push gold higher or lower, with the upside capped into the 50-day moving average (currently $2668) and unconvinced buyers stepping in and supporting at $2620.
In the daily auction that is the markets, we can see gold futures have found a fair value and resides at a level where over the past month we’ve seen the vast majority of transactions occur ($2663.64 to $2665.83). Subsequently the gold market – for now – looks incredibly comfortable at current levels and regardless of what plays out in the USD, US real rates, geopolitical headlines or even on a fiscal level, the collective sees a fairly low risk that any of these forces will result in significant gyrations in the price.
Perhaps there is an element of market players feeling the 28% rally YTD has already over-delivered as a portfolio hedge. Perhaps some have seen such a sizeable breakdown in gold’s correlation with its classic inputs that they’ve questioned the current investment case. Or perhaps it’s simply that there is a genuine catalyst that is currently missing. But, as we go through the process of discounting and processing new data and information, these recent calm and indecisive conditions shouldn’t persist for too long and if seasonality (gold has closed higher in December for the past 7 consecutive years) takes hold, then we may well see one last push into year-end.
*Chris Weston Head of Research at Pepperstone
