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Technical Analysis of Gold

Gold started off the year with remarkable gains as Europe was seeking to contain its debt crisis, China’s economic expansion slowed down and governments from the US to the UK kept interest rates at all-time lows to shore up growth. In the past three weeks the precious metal has been giving back some of its gains with a sharp decline logged on Tuesday 13th following Fed’s acknowledgement of improvements in the US labor market and the lack of reference to further quantitative easing on, with the positive sentiment towards the greenback pushing the US Dollar index above 80.00. From a longer term perspective, the gold market is in a uptrend, but since August 2011 sharp declines have been a matter of minutes for the precious metal. With the Fed promising to keep rates at a record low near zero percent until 2014 however, the bullish sentiment for the precious metal is likely to remain strong.
From a technical point of view, gold seems to have the wind in its sails despite the recent drawbacks. With the 20EMA and the 50 EMA heading upwards, firmly above the 89 SMA since January 2009 on the weekly chart, it looks like the recent decline could find support at the important 1.600 level. Considering also that the MACD signal line is above zero in combination with the bullish alignment of the moving averages, there is further evidence that the upward momentum is still in place. The picture looks less optimistic on the daily chart, with the price trading below the 89 SMA and a bearish alignment of the EMAs, however as long as the trendline starting from October 2008 continues to offer support, the bulls should be further encouraged. Once the 1.600 support level and is tested the bulls could drag the precious metal up towards key resistance at 1.779. In the alternative scenario, should that level be broken, it could open the way for the next support level at 1.543.
Weekly Chart

Daily Chart

Dafni Serdari
Market Analyst
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