Monday, July 14, 2014

Gold is reaching for a strong resistance level | Also: is the floor in place for the precious metal?

Gold has been doing well of late, with the price showing a rise for the sixth week in a row on Friday last.

Tensions in Ukraine, softer tones from the FOMC about raising interest rates, a mooted transfer of liquidity out of equities into gold on the back of nervousness about the elevated levels of the equity indexes and now, a reminder of the darkest days for the Eurozone in the recent past, courtesy of Banco Espirito Santo of Portugal. All of these things are expressed as reasons for the current allure of gold.

It can all change so quickly, of course. The factors mentioned can cease to be of concern to market participants. Some of them can change completely, to become the opposite of what they were.
In the meantime, Technical Analysis indicates that the precious metal is heading, once more, to its 200 period Exponential Moving Average (EMA) on the weekly chart (above). This indicator has been a solid level of resistance in the past.  At the very least, gold bulls would need to be aware of its existence as well as its power, and take appropriate precautions.

Those of us who skeptical about the value of gold might consider looking for short positions in the not-too-distant future.

Is the floor in for the precious metal?

That said, it would also appear that a floor for the price could have been established. On the chart right now it is indicated that it might be at 1180 US dollars per Troy Oz, which is not so far away from the psychologically important round figure of $1000. It is not out of the question that this represents the long-term “fair value” for gold, in something like the same way that what would have been regarded as an outrageous price for oil not too long ago, centred on $100 per barrel, has now been established as something that is approaching the norm.

Time will tell.

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