The Sun Is Shining For Gold Bugs

GC weekly chartFor gold bugs, last weeks price action was hugely encouraging for several reasons and is a sentiment that has followed through into early trading at the start of a new week, with gold currently trading at $1322.80 per ounce at the time of writing. So why was last week significant from a technical perspective?

First, the platform of support in the $1280 per ounce region held firm once again and denoted with the blue dashed line of the accumulation and distribution indicator. This provided the springboard for gold to break free from the extended congestion which has seen the precious metal trade in a narrow range for six consecutive weeks. As a result, this has now created an excellent platform of price-based support for a sustained move higher. Second, and more significant still was the breach of resistance in the $1305 per ounce area with gold closing last week’s trading action at $1311.1 per ounce. In addition, as the price continues to climb we have a low volume region ahead from $1330 to $1350 per ounce, and provided any move higher is associated with strong volume and associated price action, we could see gold move to test the next technical level which is at $1351 per ounce where a ceiling of resistance awaits and denoted with the red dashed line. This is a stronger region than that at $1332 which should be taken out with ease in due course, and if the higher level at $1351 per ounce is also penetrated, this opens the way for gold to return to the volume point of control denoted with the yellow dashed line, at $1370 per ounce in due course.

All of this is against the backdrop of what is happening in related markets and the US dollar, and it was the sharp falls in equities as a result of the latest salvo in the ongoing trade tariff wars that provided much of the impetus for gold. In other words, safe haven flows.  Looking ahead the lack of any inflation pressure and lack of direction for the US dollar which continues to trade in a narrow range on the daily DXY chart between 97 and 98.50, where it has been for the last two months may cap the current move higher.  However, with the US economy now showing signs of a slowdown and the possibility of interest rate cuts by the FED later this year would weaken and break the floor of support now being built in the 97.20 region which in turn would provide further impetus for gold.

By Anna Coulling