MARKETS SPECTATOR: Gold gearing for a resistance run?
Gold seems to be priming for another run at the $US1800 resistance level. All the trends seem to be aligning and there is scope for unchartered movements beyond that mark.
Gold’s pullback over the last few weeks seems to have come at a time when participants were least expecting it given the announcement of further stimulus from both the ECB and US Federal Reserve.
However, what seems to have happened is that the gold market anticipated the stimulus packages and rallied strongly in advance of the announcements. This sort of price action is commonly referred to as ‘buy the rumour, sell the fact’.
So the latest pullback looks to have cleared out any weak bullish positions and now gold is showing signs of strong support.
Source – Iress
As we can see in the above weekly chart of spot gold, there is strong buying support emerging around the $US1700 level, labelled support. This level also coincides with the 38.2 per cent Fibonacci retracement level of the May 2012 to September 2012 rally; pullbacks often find support around this level in up trending markets.
The up trending channel, as labelled, also looks to be triggering some buying support.
The above 20-year seasonal chart is also pointing towards a move higher. The red circle shows that gold typically experiences some sort of pullback during October, which almost directly matches what we have seen this last month. From here, it suggests gold typically continues its rally into year end.
With recent announcements from the US Federal Reserve confirming that stimulus measures are here to stay for a while yet, the supportive backdrop for precious metals and inflation hedges looks to be going nowhere.
If gold does begin to move higher, we would expect it to test recent highs around the $US1796/$US1800 level. From there, the all-important resistance at $US1803 comes into play, with a successful breakthrough opening up a move towards all-time highs around the $US1900 level.