By: Kira Brecht
August 26, 2013
The recent “stair step” rally in the gold market continues. The near and intermediate term technical trends are bullish for gold. However, the market is seeing a little two-way trade around the $1,400 per ounce level, a key psychological resistance area in pre-New York trading action and that zone could be a sticking point very short term.
Friday’s strong bullish thrust marked a breakout from a recent sideways range and defined the $1,384 per ounce level as important near term support. Markets often come back to “retest” breakout points and a dip toward support at $1,384 is possible short-term.
The $1,384 level is an important technical support point near term, which needs to hold to confirm Friday’s upside breakout. From August 16-August 22, Dec Comex gold futures “coiled” within a narrow range between $1,384.10 and $1,351.60. As long as support at $1,384 holds, a minor measured move from the coiling action targets gains to $1,416.60 near term.
The recent rally move has attracted some ETF investors back into gold. “ETP holdings recorded their largest daily inflow since 1 January 2013 on Friday at 5.8 tonnes, with SPDR (GLD) rising by 6.6 tonnes,” wrote Barclay’s analysts in a research note.
Additionally, “The latest CFTC data showed net non-commercial positions in Comex gold rose by 6.5k lots driven in part by continued short covering activity (3.6k lots), as well as the establishment of fresh longs. Gross short positions are now at their lowest since April, suggesting the scope for further aggressive short covering may slow. However, following the weaker-than-expected US new home sales, it will be key to track if sentiment is changing toward gold, and fresh longs continue to build. This is the first increase in gross longs in four weeks and there have not been consecutive weeks of an increase since April,” Barclays added.
Trend following traders are also showing interest in gold. A rudimentary moving average crossover system reveals a bullish signal with the 20-day crossing above the 40-day in early August and that remains intact.
A basic uptrend is intact on the daily gold chart with a series of higher highs and higher daily lows. A rising bull trendline is drawn off the June 28 low on the daily chart of Figure 1 below. The trend is positive and a major bottoming pattern projects a multi-day to multi-week retest of the early May high at $1,490.50.
The burden is on the bulls to keep the recent stair step rally intact. There are two support levels for traders to monitor including the $1,384 zone from August 19, and the $1,351.60 zone (the bottom of the recent consolidation pattern). That latter level has now become the most recent “swing low” and must hold to keep the stair step rally intact.