Technicals bullish for gold but fulfilment depends on ECB
All that talk of central bank intervention seems to have put a spring back into the gold market with the yellow metal recently making five month highs. And from a chartist perspective these recent moves look bullish, but for the rally to fulfil its potential central banks will need to deliver on expectations of monetary stimulus.
During August gold managed to break out of an increasingly tight consolidation phase that had been building up since May and may now be building a second base above the $1670/troy oz level and has been making attacks on $1,700 having successfully challenged resistance around $1,690. Markets tend to be almost magnetically attracted towards big round numbers and escaping them, once hit, can sometime prove a challenge. But given the right catalysts gold shouldn't have too much trouble. Recent moves upward have been made with conviction with reports of large money flows into gold exchange traded funds and growing long positions on gold futures. A rising market backed by strong volumes is usually a bullish signal.
Above $1,700 the next level of resistance should kick in at around $1,715-1,720 with more clusters of resistance grouped around $1,729-1,731, $1,751 and $1,784-1,804. Following a strong two week advance it is possible that gold prices will soon take a breather, they are on some measures beginning to look a little over-extended. Should gold make a retreat and build a second consolidation base around $1,670 or 1,630 that could signal more upward moves ahead and may result in a cup and handle formation, which is one of the most powerful bullish signals in technical analysis. However, the fate of this particular bull market is very much in the hands of central bankers at the moment.