Despite this week’s economic releases being a bit of a “mixed bag” traders and investors have tended to remain broadly optimistic as evidenced by global equity markets which are continuing to exhibit a bullish bias which appears to have come at the expense of gold which has continued to fall quite sharply. Indeed gold prices tumbled to a three month low yesterday, with the spot gold price closing at $1331.45 per ounce creating a small hammer candle as a result, as demand appears to wane for the precious metal as an alternative investment. The commodity has now fallen over 6% since the beginning of the year, making it the worst start for gold in 14 years. This follows last year’s impressive 30% return. There is now a serious discussion as to whether the gold price has peaked or whether it is simply making a, long overdue short term correction which, as a gold bug, is a view I subscribe to.
From a technical perspective whilst yesterday’s hammer candle hints at a short term rally today, the breach of the 100 day moving average at $1355 per ounce was significant, and indeed was immediately tested on Monday’s daily gold chart with the price consequently falling back and we now have two critical areas to consider. The first of these is potential support in the $1314.53 region and any break below this level may then see gold move below the psychological $1300 per ounce price handle and thereafter the 200 day moving average at $1283.33. A test of the 200 day would be significant should the price reach that level and any break below would then signal a clear change of sentiment towards gold in the longer term.
On the weekly chart the key technical indicator is the 40 week moving average which has not been tested since July 2010 and not been breached since January 2009.
One of the reasons given for the recent pullback in gold is a move into eurobonds – words fail me!