Gold - Moves Up Strongly But Runs Into Wall At $1290

 |  Includes: AGOL, GLD, IAU, OUNZ, SGOL
by: Dean Popplewell

By Stuart McPhee

Gold for Friday, August 29, 2014

Over the last few days, gold has enjoyed a resurgence as it has moved strongly higher off the support level at $1275; however, it has run into a concrete wall of support at $1290. In the week prior, gold had 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. 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 for gold has eased back towards 70% as gold has moved up towards $1290. 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 higher near $1400 before returning to its present trading levels closer to $1300.

Gold settled higher on Thursday as tensions over Ukraine increased and equity markets retreated, but analysts said the rebound could be short-lived due to strong U.S. economic growth and prospects of a U.S. interest rate hike. NATO said on Thursday well over 1,000 Russian troops are operating inside Ukraine, marking a significant escalation of Moscow's military involvement in the country. Gold rose as much as 1 percent early in the day but later cut gains after data showed the U.S. economy rebounded more strongly than initially thought in the second quarter. A bigger chunk of the growth was driven by domestic demand in a bright sign for the future. "The market woke up on geopolitical headlines around Ukraine but we gave up some gains because of very strong U.S. economic data," VTB Capital analyst Andrey Kryuchenkov said. U.S. gold futures closed $7.00 higher $1,290.40 an ounce, while spot gold gained 0.6 percent to $1,290 an ounce. The metal benefited from lower global equities and worsening international tensions after Ukraine accused Russia of bringing troops into the southeast of the country, and news more than 100 Russian soldiers were killed in eastern Ukraine in a single battle this month while helping pro-Russian separatists fight Ukrainian troops.

(Daily chart / 4 hourly chart below)

Gold August 29 at 00:55 GMT 1290.3 H: 1296.6 L: 1282.3

Gold Technical

S3 S2 S1 R1 R2 R3
1275 1240 - 1290 1330 -
Click to enlarge

During the early hours of the Asian trading session on Friday, gold is trading right around the key $1290 level after moving up in the last few days. Current range: trading right around $1290.

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 eased back towards 70% as gold has moved up towards $1290. The trader sentiment is strongly in favour of long positions.

Economic Releases

  • 01:00 NZ NBNZ Business Confidence (Aug)
  • 01:30 AU Private Sector Credit (Jul)
  • 03:00 NZ Monetary Aggregates M3 (Jul)
  • 05:00 JP Housing starts (Jul)
  • 06:00 JP Construction orders (Jul)
  • 09:00 EU Flash HICP (Aug)
  • 09:00 EU Unemployment (Jul)
  • 12:30 CA GDP (Jun)
  • 12:30 CA Industrial product price index (Jul)
  • 12:30 CA Raw Materials Price Index (Jul)
  • 12:30 US Core PCE Price Index (Jul)
  • 12:30 US Personal income & spending (Jul)
  • 13:45 US Chicago PMI (Aug)
  • 13:55 US Univ of Mich Sent. (Final) (Aug)

* All release times are GMT