A nervous end to the trading week was reflected in the gold market, with the precious metal regaining some lost ground, as traders sought out safe haven assets with the US authorities failing to reach any agreement on the fiscal cliff, which is now just around the corner. As a result market sentiment was definitely ‘risk off’, with gold and US dollar assets rising, as money flow moved out of risk and into safe haven ahead of the New Year, with the US Dollar index recovering, and equities falling sharply.
All this uncertainty was evident on the daily gold chart, with the March gold futures contract closing higher at $1660.1 per ounce, having opened the session at $1648.50, and touching a session low of $1636.30, before recovering to close higher and claw back some of the losses of Thursday, which saw the precious metal move sharply lower. However, despite Friday’s move higher, the longer term outlook remains firmly bearish, although much will depend on a resolution to the fiscal cliff issues in the US. If this remains unresolved, then expect to see further gains for gold, as investors continue to seek out safe haven assets, with money flows also into the US dollar, the Japanese Yen, the Swiss Franc and increasingly some of the commodity dollar currencies, which are also now seen in this capacity. Conversely of course, and indeed the more likely outcome, is that a last minute deal will be concluded, and risk on appetite will return once again!
Moving to the indicators on the chart, sellers remain firmly in control, on both the daily and three day chart, with rising volumes a feature on the former, and indeed it is interesting to note that even Friday’s up bar was associated with selling volume, suggesting further weakness to come. The three day volumes remain firmly bearish, only punctuated with buying from time to time. The three day trend also remains firmly negative, and indeed this has been a feature since mid October, which provided the early warning signal of a longer term change in trend for the metal, with the daily trend also mirroring this view.
From a technical perspective we have now broken below the key support region at the $1675 per ounce level, and this is now adding further downside pressure, and presents a formidable resistance level for any recovery. In addition, the isolated pivot high of the 12th December is also adding to the negative picture, and with the technical picture now looking increasingly bearish, we can expect to see gold test the next potential level of support below in the $1625 to $1630 per ounce region in due course. This is a substantial area of price congestion, and should ultimately provide the platform of support required to prevent any further decline, and a springboard for a recovery in due course. However, the key to any reversal in trend will be dependent on the volume and price action, and for a sustained return to bullish momentum, we will need to see the gold buyers back in force with rising volume in a rising trend, and a consequent change in both the daily and the three day trend as a result.
By Anna Coulling