Gold: Still A Buying Opportunity
Blackwell Global | Mar 18, 2014 04:12AM ET
With the recent market turmoil regarding the Ukraine, and market reactions to US weakness, it's easy to forget about the rest of the world and what the markets are actually doing. Gold is still looking like a strong trending opportunity for traders looking at the precious metal.
After climbing to the 1391 mark, gold markets have looked to retract on an over extension in the RSI as it pushed through the 70 mark. This retraction in the market was further extended by an easing of tensions in the Ukraine, as Crimera voted to become part of Russia. Whether this vote is legitimate, it remains to be seen. Either way, the impact on gold markets was felt and it has since dropped back to around the 1366 mark.
An easing of tensions is not a catalyst for gold to keep dropping through in the medium term. The current market sentiment still shows fears for the U.S. economy, as well as the threat of deflation in the Euro and more…
A look at current trader holdings from the CFTC shows that managed money is primarily long when compared to short; with long positions making up 83% of current market holdings for managed money . Correlation does not necessarily imply causation, but it's certainly a strong case that markets are still pricing in long term gains for gold prices.
Current market levels show heavy resistance and support levels for gold, as fundamental factors might be at play, but it's certainly clear that technical indicators are in control. A bullish up trend is the most striking feature of the gold market, and this has yet to be truly tested by the markets.
Ultimately, I have set support levels at 1365.11, 1350.25 and 1336.83 (61. Fib level), but in reality, it’s clear that any movements lower than 1365.11 are likely to end up using the trend line as dynamic support. This should not come as a shock for seasoned traders, as gold loves to trend as can be seen of its past movements. A breakthrough of this line though would certainly beg the question: Can any bullish run continue?
Resistance levels are fairly solid, and are currently sitting at 1391.68, 1410.73 and 1432.95. These are likely to be a tough ask for further gold rises, and could lead to minor ranging before further movements higher. I would expect gold to use these levels of support after pushing through.
Long term prospects of gold are looking good, despite the easing of pressure overseas in Europe. Certainly markets believe that gold can go higher, and even if there is still more light trending downwards, I would not expect it to continue once it touches the current trend line. All in all, if the market believes strongly in a trending market, then it will continue. Only a breakdown of the trend line would signal a pause for me.
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