Commodity bulls have had a rough couple of weeks across the board, with the broad CRB commodity index falling over 5% from the mid-May peak. The weakness has been widespread, with everything from industrial metals to agricultural commodities to oil all falling in tandem (see my colleague Fawad Razaqzada’s note from earlier today for more on oil).
Though it’s also fallen with its commodity brothers, gold remains broadly rangebound around the 1200 level. Last week, we highlighted the two fundamental drivers of gold and evaluated the odds of a breakout, and while the bearish impact of the strong dollar pushed the yellow metal sharply lower over the last few days, the two-month consolidation zone from 1180 up to 1225 continues to hold. From a price action perspective, gold is working on its second consecutive Doji* candle, showing indecision and a lack of an intraday trend. Meanwhile, the RSI indicator is testing its corresponding support level at 40, not yet raising any concerns of a imminent breakdown in price itself.
Given the persistence of the support level at 1180, the market may see the current level in gold as a bargain opportunity to enter low risk buy trades, especially if the dollar pulls back after its big rally. In that case, gold could bounce back to the middle of its recent range at 1200 or even the top up near 1225. For most traders though, a confirmed break below the 1180 would be a more exciting development; if we do finally see a breakdown, the measured move target would project a selloff down to the 6-month low at 1140 or lower as we head into June.
*A Doji candle is formed when rates trade higher and lower within a given timeframe, but close in the middle of the range, near the open. Dojis suggest indecision in the market.