I wrote in the beginning of December how the price of gold was supported by many technical factors. I also pointed out that even the negative news that Swiss voted against increasing the country’s gold reserves couldn’t push the price lower. Instead it actually rallied on the next trading day after the results of the vote came out. If negative news can’t push the price down, then the market sentiment is rather positive. This combined with the fact that the price action was showing signs of downtrend running out of steam helped me to conclude that the downside is limited and that the price should move towards the higher end of the long term trend channel. At the same time the analysts focusing only on the fundamentals kept on repeating the same arguments about the improving U.S. economy, the continued better labor picture, the lack of inflation, very strong stocks and the very strong dollar pushing the price of gold lower. By this they justified their views that gold is going to keep on moving lower.
Now analysts are focusing on renewed fears over the EU economics and the potential exit of Greece and suggest that the weakness in equities globally will support the gold prices. This is what typically happens with analyst expectations and market moves. The market reacts first and those who know how to read the market will have an advantage over the analysts that are still focused on something the markets as a whole have already dropped from the radar. At the time I wrote my analysis on Gold (5th December) the internet was flooded with analyst views on how the price of Gold will depreciate further due to strong dollar and low inflation and continued economic recovery, of which the strong stock market was a proof. Since the publication of this article the US Dollar index (DXY) has risen over 4% and Gold is up by 2%, so much for the strong dollar sending Gold prices lower. In addition, the so called strong stock market has not been that strong. I pointed out in my analysis on 12th November that there was underlying weakness in in the stock market (S&P emini futures traded at 2021 at the time and are now 1.5% lower) and in another piece from 29th October I suggested that there might be sideways markets ahead and the market has not been able to maintain the levels it moved to since then and is now trading only roughly 1.7% higher.
All this supports the view that the appetite for risk is gone and the market participants are looking for ways to diversify their portfolios by selling equities and adding exposure to Gold.
Gold, Monthly
Gold is still relatively close to a historical support (provided by a monthly pivot candle high from February 2010), while the monthly candle for November was a narrow range candle with open and close only $4 apart. This indicates that supply and demand were in balance in November. Even though Gold is still inside a long term downtrend channel we now have a monthly pivot candle (one higher monthly low value on both sides) right at the Bollinger Bands, which is a rather significant technical indication of momentum change. If this month’s trading closes above 1167.30 we have yet another higher low which would further indicate that the price of Gold is gaining upside momentum.
Gold, Weekly
Price of Gold has now moved above the down sloping regression channel that formed a medium term downtrend. This week price has been moving outside the channel while the last week’s candle created a third higher low since it pivoted at 1131.50 in November. There is a symmetric triangle created with lower weekly highs and higher weekly lows. The fact that the price is relatively close to a historical support and in a process of reacting higher from this support, we might well see that the price will break out to the upside. A weekly close above the last week’s high would be a further bullish sign. Should the breakout happen the Fibonacci Extension Levels of 1.00 and 1.618 (drawn by using the points a, b and c) would indicate potential short to medium term target levels. Their significance is increased by the fact that they coincide with monthly pivot candle high and low from July 2014. The nearest weekly resistance is at 1226.30 (a weekly shooting star candle low from October).
Gold, Daily
The trend in the daily chart is sideways but the price making higher lows each time it retraces to the Bollinger Bands and moves inside the 7th November pivot candle range (the green highlight). The weekly resistance and support levels limit the current sideways move with assistance from the daily Bollinger Bands. Look for Momentum Reversal Signals inside the green support area to either go long or exit the short trades. The area to look for short MR Signals would be above the 1226.30 level.
Conclusion:
Even though Gold is still inside a long term downtrend channel we now have a monthly pivot candle (one higher monthly low value on both sides) right at the Bollinger Bands, which is a rather significant technical indication of momentum change. This week price has been moving outside the medium term downward channel while the last week’s candle created a third higher low since it pivoted at 1131.50 in November. The trend in the daily chart is sideways but the price makes higher lows each time it retraces to the Bollinger Bands and moves inside the 7th November pivot candle range (the green highlight). At the same time the stock market has been sluggish which suggests that the market participants are not that eager to buy stocks but they might instead be diversifying their portfolios and moving money into safe havens such as Gold. All these factors point to the price of Gold moving higher over the coming weeks and months, however the sideways range could provide actionable trade setups at both ends for traders who understand the Momentum Reversal Signals and Multi Time Frame Analysis. Those wanting to learn how to trade professionally open an account with HotForex and gain access to my past and future educational webinars. I will take you through all the aspects of analyzing the markets and trading them the way the professionals do.
Disclaimer: Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of purchase or sale of any financial instrument.
Janne Muta
Chief Market Analyst
HotForex