Is the worst over for gold bugs? Well it would certainly seem so, as we now have a confluence of factors which should all help to drive the price of gold higher, certainly over the next few weeks, if not months.
If perhaps we start with the fundamentals. With the FED now signalling an end to their bond buying program, this suggests, among other things, the prospect of higher interest rates in the future. With higher rates will come the prospect of inflation, and with inflation gold becomes a key player as a hedge. The FED effect is also seen in the US dollar, which has been selling off over the last few weeks, and helping commodities regain some traction, with gold gaining as a result. Instability in Syria is also helping, with the safe haven driver now coming into play, and with all these factors combining, the outlook for gold, and indeed silver is extremely positive.
Turning to the technical picture, this is broadly supporting the economic one, which now looks very positive indeed. The breakout beyond the $1345 per ounce region was the first sign that gold was recovering some bullish momentum, particularly as this move higher was accompanied with above average volume. The second leg up then duly arrived with the precious metal breaking above $1380 per ounce region and finally in yesterday’s gold trading session, beyond the psychological $1400 per ounce area. The next few days are now key, with the price action testing the resistance level at $1425 per ounce and beyond. This is the top of the volume at price histogram which has been rising steadily throughout this phase of price action, with ever deeper bars, with the two at the top extending almost midway across the chart.
These are the deepest and most difficult to penetrate, and provided we see the market close well above this level, then this will provide a terrific platform of support for a further move higher. Should this happen, as expected, then the market looks set to test the $1460 – $1480 per ounce area, and from there on to $1500 per ounce an beyond. All good news both technically and fundamentally for gold bugs. It’s been a long wait, but the gold is on the way back and looking strong, and with the fundamental picture also very supportive, then gold is looking set to develop a longer term trend higher.
By Anna Coulling