Gold may fall in short term, but long term technicals look fair
Back in November, I suggested that we could see a short squeeze in the gold market if prices were to fall below $1080, followed by a sharp bounce at the start of 2016 (please see the related idea below for the original chart and analysis). While I had specifically indicated $1010-1020 as an ideal zone to watch for such a reveral, the market ended up bottoming at $1146 in December.
Back in 2012, during the summer when markets were speculating on Bernanke announcing QE3, I had noticed that price reacted well to the 100-week moving average. At the end of that year, the market attempted to rebound again on this moving average, but it subsequently broke with increased selling pressures at the start of 2013. That turned out to be an incredible trading signal. You'll notice as well that this same moving average acted as resistance in January of last year at around the $1300 level.
Now fast forward to today. Gold broke the weekly MVA100 in February and flirted with the $1300 level again last week. The MVA100 is now at around $1194. $1191 is last October's highs. This area could theoretically attract buyers if gold were to retreat from current levels in the next few weeks. Ideally, we would see a distribution phase set in while traders wait for more US economic data to better establish their expectations regarding the Fed's rate policy later this year. Any setback for the US economy, and in particular in the labor market, would likely weigh on the US dollar. Dollar weakness would significantly increase the probability that gold breaks above $1300 later this year, leading to another bullish extension after the anticipated distribution period. I would prefer to see this happen near the start of the third quarter.
Back in 2012, during the summer when markets were speculating on Bernanke announcing QE3, I had noticed that price reacted well to the 100-week moving average. At the end of that year, the market attempted to rebound again on this moving average, but it subsequently broke with increased selling pressures at the start of 2013. That turned out to be an incredible trading signal. You'll notice as well that this same moving average acted as resistance in January of last year at around the $1300 level.
Now fast forward to today. Gold broke the weekly MVA100 in February and flirted with the $1300 level again last week. The MVA100 is now at around $1194. $1191 is last October's highs. This area could theoretically attract buyers if gold were to retreat from current levels in the next few weeks. Ideally, we would see a distribution phase set in while traders wait for more US economic data to better establish their expectations regarding the Fed's rate policy later this year. Any setback for the US economy, and in particular in the labor market, would likely weigh on the US dollar. Dollar weakness would significantly increase the probability that gold breaks above $1300 later this year, leading to another bullish extension after the anticipated distribution period. I would prefer to see this happen near the start of the third quarter.
