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Technical Trading: The Week Ahead - Bulls Seize Control of Gold Again

21 February 2012, 11:49 a.m.
By Kitco News
http://www.kitco.com/

(Kitco News) - Tue Feb. 21—April Comex gold futures shot higher out of the starting gates Tuesday, as the bulls seized control of the short-term trend.

The market had been consolidating over the past couple of weeks in a modest downward fashion, but April gold has rocketed $30 higher an ounce in morning trade Tuesday, putting the focus firmly back on the $1,765.90 resistance ceiling from Feb. 3.

The sideways to lower consolidation in recent weeks failed to harm the overall medium term bullish technical trend and it allowed the gold market to work off some of its overbought momentum readings.

In early February, the 9-day relative strength index (RSI), a widely watched momentum indicator topped out above the 80% mark. Any reading above 70% is considered to be overbought. In recent weeks, the RSI has fallen down to the 49% area, leaving the market in a more healthy state to rally again.

Peter Ruud, technical analyst at Informa Global Markets, monitors the spot gold market. He noted that "gold hit an all-time high versus the yen." Ruud also noted that gold priced in euro was also close to its all-time high levels. He said that the all-time high in gold priced in euros was set in September 2011 at $1,374.71 euros and is now at $1323. "It's 50 points off the highs. When you are near or at new highs against gold in a number of currencies, it buoys gold in general."

Looking at spot gold, Ruud highlighted key near term resistance at the February swing high at $1,760 per ounce level. "If we can clear $1,760 it is a straight shot to $1,800," he said.

Near term, Ruud called the $1,760 area "very important" and gold's action around that resistance zone could be the key to "directional activity for the next few weeks to few months."

Pointing to overall financial market risk sentiment, Ruud said there were a "lot of gaps in forex and equities" from Friday's close to Monday's open on the hourly charts. "Euro/yen, dollar/yen, the euro chart show bullish gaps. If those gaps hold the risk on trade is good and gold could benefit," he explained.

Bottom line? "If we break $1,760 it is off to the races toward $1,800," Ruud concluded.

Meanwhile, May silver futures have probed higher Tuesday, but remain within a multi-week sideways consolidation band on the daily chart. Last week saw a failed downside probe below range-bottom support. Buyers were quick to swoop in on the intraday dip Feb. 16. That bodes bullishly for a near term test of the range top.

Range-top resistance for May silver lies at $34.54 an ounce. The so-called measured move objective on an upside breakout above that ceiling comes in around the $36.00 zone.




By Kitco News