Whenever I am about to put pen to paper to write about gold, I can feel the gold bugs breathing down my neck, and preparing to deliver either some stinging rebuke or to refute point blank what the market is signalling. Indeed I also seem to attract a similar reaction when writing about silver.
So before proceeding further, let me set the record straight. First, as a commodities trader and speculator I really do not care whether a market rises or falls longer term. If gold rises and duly reaches $10,000 per ounce, I will be trading along with it, but the difference will be that in my analysis at some point over this period, I will have suggested that it was a good time to invest in gold. And the same would apply to silver. In other words, I am emotionally neutral to both gold and silver. I have no strong feelings either way. At present I would not advocate investing in either metal as a long term investor as both markets are still heavily bearish, and indeed it was only two weeks ago I dared to suggest that gold was picking up bearish momentum once again with the metal trading at $1156 per ounce at the time of writing. Since then, the combined effects of the FED and a stronger US dollar have driven the precious metal through the psychological $1100 per ounce area, to close at $1087.70 per ounce, with Friday’s Non Farm Payroll delivering a further injection of downside momentum, and pushing the market ever further from the volume point of control which remains in the $1190 per ounce area.The weekly chart neatly describes the current negative sentiment for gold, with widening spreads on the last three weeks associated with rising volume, and confirming the fragile nature of this market at present.
The only glimmer of hope, in the short term from a technical perspective, is the potential platform of support in the $1080 per ounce area, which also provided a platform for a sustained rally higher in the early part of 2010, (as shown with the blue dotted line on the daily chart). But if this is breached then in the longer term we could see gold move to test the $1000 per ounce area. The price region provided some strong resistance at the time as gold rallied through this region on its way higher in late 2009, and which may now return the favour and act as support.
Finally, gold investors, we have yet to see any sign of a buying climax by the big operators, and if and until we do, then for traders, it’s simply a question of being on the right side of the market on an intraday basis, whilst for investors, it is still a time to be patient and consider other long term investments offering better returns.
By Anna Coulling
Charts from NinjaTrader and indicators from Quantum Trading