By: Kira McCaffrey Brecht
September 3, 2013
Financial markets remain jittery and nervous regarding events over Syria as the U.S. Congress will soon begin its debate over military action against Syria. Gold saw brief traditional safe-haven buying on early morning news reports that Russia’s early warning system detected two missiles were launched in the Mediterranean. News reports remain limited regarding the origin of the missiles.
Technically, the initial reaction in the gold market to the news reveals that the yellow metal is likely to retain a bid as the geopolitical uncertainty remains at high levels this week. Crude oil futures also saw a strong bounce from overnight lows on the initial reports, but have since eased off like gold.
Technically, December Comex gold futures remain in a daily uptrend, off the June 28 low. A rising bull trendline can be drawn off the late June and early August lows, which reveals support well below the market around the $1,331.60 zone. See Figure 1 below.
Daily momentum has turned lower from overbought territory. The 9-day relative strength index (RSI), a widely watched momentum indicator has tumbled to the 61% area early on Tuesday, falling from last week’s 81% reading. Any reading over 70% is considered overbought and the modest price pullback to the overnight low at $1,373.60 has allowed the market to work off that overbought status. However, for now, the indicator remains negatively positioned, which could allow for modest additional downside testing short-term.
Support comes in at the August 20 swing low at $1,351.60. See point A on Figure 1. That zone represents the previous swing low and needs to hold on downside tests to keep the recent uptrend pattern intact. With the uncertainty surrounding Syria and potential military action, however, dips in gold are likely to be short-lived and used as buying spots near term.
On the upside, a short-term top is seen at last week’s high at $1,434 and that represents near term resistance. A minor bearish shooting star emerged as the market set that high on August 28, which reveals the bulls were unable to defend the intraday push to that high. Near term, the gold market remains on the defensive, and could see sideways consolidation or downward pressure as momentum continues to work off its recent overbought status.
However, the gold market will remain finely attuned to any headline news regarding the Syria or potential military conflict, which would provide a knee-jerk bullish support for the yellow metal.
Beyond the $1,434 zone, if gold musters enough strength to conquer that ceiling with a sustained rally move near term, the next major bullish objective lies at the $1,490.50 level, the early May high, which roughly matches a measured move target from a bottoming pattern on the daily chart.
The near and medium term trends are bullish for gold. The market has stalled out at the $1,434 level short-term. The market sees a large amount of event risk over the next several weeks, including potential action over Syria, this Friday’s U.S. jobs report, the September 17-18 Federal Open Market Committee (FOMC) meeting and potential news on when the central bank may decide to begin tapering its monthly asset purchases. The burden is on the bulls to maintain the uptrend. Near term, as long as $1,351 remains intact, the trend pattern will remain positive.
Kira Brecht is managing editor at TraderPlanet.
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