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Technical analysis: gold

The precious metal closed almost unchanged at $1.571 per ounce last week, finishing down only 0.32% overall, as the greenback was busy rallying sharply against the euro and posted moderate gains across the rest of the majors (apart from the Japanese yen).

Fundamentally the gold market is currently subject to two major factors: the possibility of QE3 and the financial drama in the eurozone. With Bernanke stating that the Fed may not be the best institution to help the economy, more QE seems less likely at the moment. On the eurozone front, the lack of game-changing measures, as evidenced by Italian and Spanish bond yields and the sell-off on Friday of European equity markets, is likely to increase the demand for the most liquid asset, i.e. the US dollar, which would in turn dampen demand for gold.

With the second quarter US GDP figure released on Friday, there is plenty of room for European concerns to hold back gold. From a technical point of view, the picture looks rather negative with the bears holding the price action consistently below the downturn trendline since the beginning of March.

With the MACD signal line hovering right below zero and the RSI holding around and below the 50 level on the daily chart, there could be more room for further downside movement to the next major support level at $1.500. In the alternative scenario, only a break out of the current range above $1.615 would trigger upside movement in the gold market, opening the door for a re-test of the $1.666 resistance level.

Click to expand image

Dafni Serdari
Market Analyst

Published: 23 July 2012

You should under no circumstances consider the information and comments provided as an offer or solicitation to invest. This is not investment advice. The information provided is believed to be accurate at the date the information is produced.

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