April gold futures have picked up the bullish tone which began to develop towards the end of last week, helped by the news from Cyprus. This has triggered the usual knee jerk reaction into safe haven assets both physical and paper based as a result. Gold has been one of the beneficiaries this morning with the electronic contract on Globex climbing above the $1600 per ounce level, ahead of the physical session which begins shortly.
From a technical perspective, the outlook for gold bugs is a little more optimistic, following the extended period of sideways congestion in the $1555 to $1595 per ounce region, and this morning’s break above the $1600 per ounce level is a welcome relief. Over the last few weeks, we have seen increasingly positive signals that gold is recovering its bullish momentum once again, following the extended phase of bearish sentiment, with some analysts even suggesting that gold was on a steep downwards decline.
The first signal was much the same as for silver (as explained in my first post today), with rising and significant volumes on the daily chart in the second half of February, with the two most important bars being those on the 20th and the 21st of February. The first of these closed with extremely high volume, but well off the lows of the day, whilst the candle of the 21st closed higher, again with extremely high volumes, both early warning signals of buying in the market and potential stopping volume as a result.
Gold prices did indeed rally, but the move was only temporary, before moving back lower once again, to test support in this price area, and absorb any further selling. Subsequent down candles have since shown average or falling volumes, suggesting that the selling pressure was declining, and indeed this was further confirmed ( like silver ) with a hammer candle on the 8th March, which was also accompanied with high volume, giving a clear signal of heavy buying in the market. Since then, we have seen the daily trend bottom out, and begin to turn higher, and with the isolated pivot low of Thursday last week, giving further support, gold now looks set to continue breaking higher in the short term.
The key for the medium term is likely to be dictated by the price volume relationship. For a continuation and development of this potential reversal, we need to see rising volume accompanying any rising candles on the daily chart, and a break beyond the $1620 per ounce level should provide the first platform of support for the next leg up. If this price level is breached then expect to see gold prices move higher in due course, back to test the underside of resistance in the $1650 per ounce region in the next few weeks. This assumes that all the selling pressure of the last few weeks has now been absorbed, which appears to be the case on the daily chart.
By Anna Coulling
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