Gold - Sellers Placing Great Pressure On Support At $1275

by: Dean Popplewell

By Stuart McPhee

Gold for Wednesday, August 27, 2014

Over the last week now, gold has been falling lower back towards the medium-term support level at $1290; however, to finish out last week it fell sharply down to the previous key level at $1275. In the last 24 hours, gold has surged higher, but run into the previous key level at $1290 before spending more recent hours easing lower. A couple of weeks ago gold was meeting resistance around $1313 which saw it finally ease lower. Just prior to that it moved well away from the support level at $1290 and back up well above $1300 to a two-week high above $1322 before easing lower. It had also been easing lower and placing pressure on the support level at $1300 which eventually gave way resulting in gold falling sharply back down to a six-week low near $1280 a few weeks ago. Over the last month or so, the $1290 level has shown some signs of support and held gold up until its recent fall. During the second half of June, gold steadily moved higher but showed numerous incidents of indecision with its multiple doji candlestick patterns on the daily chart. This happened around $1320 and $1330.

The OANDA long position ratio has moved back up strongly to near 75%, as gold has fallen sharply back down towards $1275. At the beginning of June, gold did very well to repair some damage and return to the key $1275 level, then it has continued the momentum pushing higher to its recent four-month high. After moving so little for an extended period, gold dropped sharply back in May from above the well established support level at $1275, as it completely shattered this level falling to a four-month low around $1240. It remained around support at $1240 for several days before its strong rally higher. It pushed down towards $1280 before sling shotting back and also had an excursion above $1300 for a short period before moving quickly back to the $1293 area again. Over the last few weeks, gold has eased back from around $1315 to establish its recent narrow trading range below $1295 before its recent slump.

Way back since March, the $1275 level has established itself as a level of support and on several occasions has propped up the price of gold after reasonable falls. Throughout the second half of March, gold fell heavily from resistance around $1400 back down to a several week low near support at $1275. Both these levels remain relevant as $1275 continues to offer support and the $1400 level is likely to play a role again should gold move up higher. Through the first couple of months of this year, gold moved very well from a longer term support level around $1200 up towards a six month high near $1400 before returning to its present trading levels closer to $1300.

Gold closed above $1,285 an ounce on Tuesday after an earlier pause in the dollar rally prompted a break above $1,280 an ounce that triggered chart-based buying, but gains were expected to be limited as optimism grows on the pace of the U.S. economic recovery. Spot gold hit a session high at $1,290.80 an ounce in early trade, as stop orders were triggered on a break of the 200-day moving average just above $1,280. Buy stop orders are automatic orders placed by traders at pre-set levels. Prices have been rebounding from a two-month low of $1,273.06 which was hit on Aug. 21 on speculation of an eventual increase in U.S. interest rates. They were last trading up 0.6 percent at $1,284, while U.S. gold futures closed $6.30 higher at $1,285.20 an ounce. "Overall, it seems that gold is getting back into that range of $1,287 and $1,312 as it is clawing back some of the losses made last week and gaining on the back of technical strength," Mitsubishi analyst Jonathan Butler said. "But with the dollar likely to remain strong, given the speculation of possible forward guidance from the Fed, and U.S. equities also higher … I'm not seeing a spectacular rally in gold."

(Daily chart / 4 hourly chart below)

Gold August 27 at 00:15 GMT 1280.6 H: 1282.2 L: 1280.1

Gold Technical

S3 S2 S1 R1 R2 R3
1275 1240 - 1290 1330 -

During the early hours of the Asian trading session on Wednesday, Gold is easing lower after having recently surged up to the resistance level at $1290. Current range: trading right around $1281.

Further levels in both directions:

• Below: 1275 and 1240.

• Above: 1290 and 1330.

OANDA's Open Position Ratios

(Shows the ratio of long vs. short positions held for gold among all OANDA clients. The left percentage (blue) shows long positions; the right percentage (orange) shows short positions.)

The long position ratio for gold has moved back up strongly above 70% again as gold has fallen sharply back down towards $1275. The trader sentiment is strongly in favour of long positions.

Economic Releases

  • 01:30 AU Construction Work Done (Q2)

*All release times are GMT