Gold: Equity weakness needed to maintain rally - TDS

Analysts at TD Securities explain that after spending the majority of the summer in the gutter as the bears piled on record short positions, it took a 10% correction in equities to convince these shorts to finally start covering.

Key Quotes

“This round of short covering did well to lift the yellow metal off the lows, and even to as high as $1243.48/oz last week, but we are wary of the staying power this latest uptick, especially as the US dollar continues to grind higher.”

“If equity sentiment remains on edge, especially as US-China trade rhetoric begins to pick up again, we wouldn't be surprised to see gold hang around the recent highs, but we do not expect gold to break sustainably above $1230/oz. With that 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 reason for the yellow metal to remain north of $1230/oz.”

“With the DXY looking to test the highs of the year, the CNH slowly creeping toward the 7 handle and the hawkishness of the Fed, relative to other western central banks, the yellow metal could very easily revert back to $1200/oz if these topics become the focus once again. Indeed, key technical support and CTA selling triggers stand in the $1220-1215/oz region, and breaks of these levels could swiftly bring prices back to $1200/oz.”

“Given that the short term performance of precious metals will rely heavily on how equity markets perform this week, this weeks earnings releases will be of the utmost importance.”