Gold Retreats from Multi-Year Highs, But Outlook Remains Bullish

Gold is once again retreating from $1375 resistance area, marking its highest level since March 2014, and has now dropped back below $1360 level. The precious metal remained underpinned by uncertainty surrounding the historic Brexit referendum and has been heading higher despite of buoyant global equity markets.

Last week on Friday, the commodity fell sharply and touched a weekly low level of $1335 after the release of surprisingly strong US jobs report for the month of June. According the data, US economy added 287,000 new jobs in June, recording its largest job gain since October. The data triggered a sharp rally for the US Dollar and weighed down the yellow metal.

The metal, however, managed to recover swiftly as investors remained skeptic that tepid wage growth might negate the effect of a blockbuster headline jobs number and wasn’t enough to convince the Federal Reserve to further hike interest-rates during 2016. The post-Brexit uncertainty has further strengthened the view that the Fed is likely to wait for longer time before deciding to hike-rates again, which might eventually benefit the precious metal. Nevertheless, Gold ended higher with a gain of nearly 2.0% and booked sixth straight weekly advance.

Ever since the UK voted to end its membership with the European Union, Gold has been gaining traction on safe-haven flows on the back of persistent global uncertainty over the economic implication of the June 23rd referendum. Friday’s sharp recovery from lower levels is indicative of massive buying interest awaiting to move-in, which seems to limit any immediate downside for the precious metal.

Adding to the prevailing uncertain environment, the risk of a new Euro-zone banking crisis after the Italian government denied any plans to support the country’s banks hit by Brexit, and worries over Chinese economic slowdown, might again trigger a spurt in volatility across global financial markets and boost the traditional safety of the yellow metal.

Technical outlook

From current levels, $1353-50 region seems to act as immediate support, which if broken seems to drag the commodity towards a short-term ascending trend-line support near $1340 region. A convincing break below $1340 support might now trigger a near-term corrective move for the metal that might force it to break below Friday’s swing low support near $1335 and head towards retesting $1310 support.

Meanwhile on the upside, $1370-75 region, representing 61.8% Fibonacci expansion level of Brexit-led sharp up-swing and subsequent retracement, remains immediate resistance level to conquer. A sustained move above this immediate strong resistance now seems to pave way for extension of the bullion’s near-term bullish trajectory, immediately towards March 2014 highs resistance near $1390-92 region and eventually above $1400 mark towards testing 100% Fibonacci expansion level resistance near $1410 level.