Recent Gold Price Action: Bullish

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 |  Includes: DIA, GLD
by: Damir Tokic

The recent price action of gold has produced a bullish signal for the near term. The price of gold sharply corrected in February from around $1680 to around $1560, bounced to $1620, and went back to the $1560 area. In fact, the price of gold has been steadily holding at around $1575 for the last 6 days (see Figure 1). We believe that this is a bullish signal for several reasons:

First, the weekly chart shows (figure 2) that this is near a very important long term price support level - breach below $1525 would break the long term uptrend and possibly burst the "gold bubble". Thus, the fact that gold has been steadily trading just above the key support level is bullish.

Second, the price of gold has been remarkable stable around $1575 as the stock market reached the new record, which could have provided a trigger for breaching the key support level.

Third, the payroll numbers for February were above expectations and rather strong, which also could have provided a trigger for sell-off in gold. In fact, the price of gold sold-off initially in response to better than expect employment number, but quickly reverted back to the $1575 level.

Finally, it appears that gold is forming a double-bottom pattern on the daily chart, which could produce a quick retest of the resistance level at $1640-1680 level.

Figure 1. Daily chart for April 2013 gold futures contract.

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Figure 2. Weekly chart for April 2013 gold futures contract.

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(Click to enlarge)

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Long gold futures.