Gold Under Key $1700 Handle – Technical Analysis/Sentiment Overview
The price of gold plummeted around $28/oz yesterday to the $1670.90 level, the lowest since late August. The precious metal had been trading above the key $1700 oz level but the subsequent downside move has seen a lower high form around the $1754 area.
Market participants appear to be reticent to take long positions in gold during the current thin liquidity conditions and look to be adopting a “wait and see” mindset as we head into the end of 2012. When looking at gold we note that any short term bearish price action has to be weighed against the unique store of value and the lack of counter-party that gold offers from a fundamental perspective. Gold was one of the best performing commodities during 2012 and up around 7%, for a 12th consecutive annual basis gain.
There is a key technical confluence level on the XAU/USD around $1630 - which we look at near the end of this post – but first of all a general sentiment update.
Fiscal Cliff Developments
Negotiations in Washington appear to have started moving forward with both sides (the White House and Republicans) offering concessions. Obstacles remain on this front but developments late last week, when John Boehner (Republican Speaker of the House) came to the fore with proposals for tax-rate increases for those earning over USD 1 million, look to be gathering an element of momentum. The proposed policy differences between the republicans and the White House are narrowing over recent days with hopes for a deal improving.
India And China
China and India combined account for around 40 percent of the physical gold market. Developments in China, which is the world’s second-largest gold buying nation, indicate that a growing portion of China’s bankers believe that looser monetary policy measures could be ahead, according to the Chinese central banks quarterly survey.
India’s central bank has left the repo rate on hold at 8%. The RBI advised that the headline inflation figure was below its projected level over the prior two months and that a decline in core inflation was “comforting”.
Gold Technical Analysis Overview
- A break under the 1672.54 area 5/11/2012 low has seen a lower high form around 1754.
- Price is now trading just above the 200 period SMA (Simple Moving Average) level after finding an element of support.
- Any sustained continuation lower bring a key technical area into focus comprised of the following elements: 61.8% Fibonacci retrace, FE100 expansion from a potential ABC correction point and the previous resistance area around $1630.
The near term price action has been bearish, but over the longer term factors including low interest rates, loose monetary policy measures by central banks, inflationary concerns, and purchases by central banks could prove to be supportive for gold. We will be monitoring the price action on any drop to the aforementioned confluence area around 1630.
Gold Technical Analysis – Daily Chart – 19/12/2012