18 December, AtoZForex.com, London – Bank of America Merrill Lunch argues that gold’s trend is still pointing lower for many reasons and now that the Fed has increased interest rate by 25bp, the outlook to sell gold rallies has only strengthened.
Sell gold rallies
The precious metal is currently trading below the 50% Fibonacci retracement level based on the 1999 low to the 2011 high and is reaching the lower two-year downward sloping channel boundary.
Moreover, the yellow metal continues to trade below the key 50 and 200 day simile moving averages (SMA) with both of the main indicators sloping downwards. Meanwhile, daily RSI and MACD further suggest bearish momentum, as the indicator fluctuates below a neutral 50 level and the momentum bars keep forming above the line respectively.
“Momentum continues to reach oversold in down moves. Many of the past rallies have failed to reach the top of the channel. These are all signs of a downtrend that should continue in 2016,” Bank of America Merrill Lynch argues in its analysis to sell gold rallies.
From a fundamental point of view, the demand for safe haven asset gold has only decreased as the Federal Reserve System (Fed) increased the interest rates. Not only did the US central bank decreased the global uncertainty, it has also elevated USD as a safe haven relative to the gold.
Consider reading: BNP Paribas post-hike USD outlook
Near term risk
However, recently Gold prices diverged from the overall bearish momentum indicating that the end of year decline is weaker relative to the mid 2015 decline.
“This is a bullish divergence signal and suggests gold may exhibit some near term strength. We see 1086, 1105 and 1165 as resistance (levels),” Bank of America Merrill Lunch notes, adding that:
“we recommend selling into strength and target 988 next year.”
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