Gold Reversal Imminent?
Mingze Wu | Jul 09, 2013 06:58AM ET
Gold has been relatively supported for the past 2 trading days, ever since price tanked last Friday due to a much stronger NFP print which resulted in USD strengthening immensely. This rally may be a temporary pullback – a rather common occurrence especially after such an extended bearish move. However, there are reports that physical traders are buying up huge quantities of the yellow metal just above 1,200. 1,200 is also the estimated cost price per ounce it takes for miners to extract and refine gold. As such, based on the laws of economics, should gold prices hit below 1,200, miners will no longer be incentivized to produce more gold, resulting in a lower physical output and hence higher prices. Of course, commodities derivative products can be totally disconnected from the underlying physical price (Oil Futures, I am looking at you), but it will be highly difficult for ETF gold prices or Futures/CFDs to push lower should the 1,200 physical price not budge.
Weekly Chart
Hence, given this outlook, the pullback in Gold prices may easily become a stronger correction rally. From a technical perspective, Price does not really have any immediate resistance, with 1,330 the closest on the chart. Stochastic readings also suggest that a bullish cycle signal may occur soon, with Stoch lines pushing above the signal line.
Should price clear 1,330 this week, the likelihood of the Stoch reading clearing 20.0 would be high, which will form a proper bull cycle signal to open up bullish targets closer to 1,400. Furthermore, should price manage to reach above 1,300, there will be the formation of a Morning Star, which will increase the likelihood of a strong bullish reversal.
Hourly Chart
The short-term chart shows a ceiling at 1,260, but price is currently within the consolidation zone between 1,240 – 1,260, and even if the price falls lower from here, it does not necessary invalidate the rally from 1,210. To be sure, Stochastic readings suggest that a move lower from here is likely with the Stoch level closing to push below 80.0. However, price may be able to find some support via the rising Channel Top and even if that is broken, a Channel Bottom will be able to provide an additional level of support. With the Channel bottom already clearing the 1,240 level, it becomes even more unlikely that Gold bears will be able to reach the consolidation floor, and we could possibly see price actually rebounding higher from there with Stoch levels in a much healthier non-overbought level.
Get The News You Want
Original post
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.