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By Stuart McPhee

Gold for Friday, September 5, 2014

After running into resistance at $1290 for a few days, gold has fallen sharply over the last week and in doing so has broken through the support at $1275. It rallied a day ago; however, ran into further resistance at $1275 before falling lower to a four-month low around $1258. A week ago, gold was enjoying a resurgence as it moved strongly higher off the support level at $1275; however, it then ran into resistance 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 moved back up towards 75% as gold has fallen sharply through the $1275 level. 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 prices settled lower on Thursday as brighter prospects for the U.S. economy and the dollar dimmed the metal's appeal. Bullion got little impetus from the European Central Bank's dramatic decision to cut three separate interest rates, as well as purchase asset-backed securities, in a bid to jumpstart Europe's languid economy. U.S. gold futures for December delivery ended the session $3.80 lower at $1,266.50 an ounce. Spot gold was last down 0.5 percent at $1,263 an ounce. The dollar index rose 1.2 percent against a basket of currencies. The metal fell to a low of $1,261.19 on Wednesday, its weakest since mid-June, before closing with a small gain. Gold, seen as an alternative investment during times of geopolitical and financial uncertainties, has gained about 5 percent this year amid tensions in Ukraine and the Middle East. But bullion investors continue to worry over strong U.S. economic data and its impact on the dollar.

(Daily chart / 4 hourly chart below)

Gold September 5 at 00:55 GMT 1258.4 H: 1262.4 L: 1257.4

Gold Technical

S3S2S1R1R2R3
1240--12901330-

During the early hours of the Asian trading session on Friday, gold is trading in a small range just below $1260 after recently dropping sharply from the $1275 level. Current range: trading right around $1259.

Further levels in both directions:

• Below: 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 towards 75% as gold has fallen sharply through the $1275 level. The trader sentiment is strongly in favour of long positions.

Economic Releases

  • 05:00 JP Leading indicator (Prelim.) (Jul)
  • 09:00 EU GDP (2nd Est.) (Q2)
  • 12:30 CA Labour Productivity (Q2)
  • 12:30 CA Unemployment (Aug)
  • 12:30 US Non-farm & Private Payrolls (Aug)
  • 12:30 US Unemployment (Aug)
  • 14:00 CA Ivey PMI (Aug)
  • JP BoJ Publication of Monthly Report

* All release times are GMT

Source: Gold: Drops To 4-Month Low Below $1260