Gold rose for the week, but pulled back from the highs to close below the $1,650 level. This area is a strong resistance area, and until we can clear it on at least a daily close, it will be difficult to buy this contract for any length of time. The market has been grinding lower lately, and is even possibly trying to form some kind of wedge.
The $1,550 level recently has been the “line in the sand” for the bulls, and will be the start of significant support down to the $1,500 level. The level should be considered a bit of a trigger as the breaking below it would signal a massive capitulation of bullish players. With this in mind, we also must note that the last eleven years has been bullish.
The government downgrades in Europe on Friday will also have traders wanting to own harder assets, and gold is one of those places that a lot of investors will run to when they do not trust the value of currencies in countries that are having so many issues currently. The bond markets also will offer no real safety in many of the major countries, so this too could play into the hands of gold bulls.
The breaking of the $1,500 level would more than likely be accompanied by a massive run to the US dollar, although both can rise at the same time. (Despite what many traders think.) The rising of both instruments would signal that gold is the safety trade again, and if the Dollar doesn’t rise, it could mean that it is a plain beta play. Either way, there are several currencies that gold should rise against, but the Dollar being in the equation can somewhat skew results. In fact, if you have the ability to buy gold in Euros, the returns will more than likely be higher in that market.
If you do not, we are buying this contract on a daily close above the $1,650 level, and selling on a close below $1,500. Everything in between is a bit too noisy for our liking at the moment.
Gold Forecast for the Week of January 16, 2012, Technical Analysis
Originally posted here
