Gold Reverses Recent Trend – U.S. Economic Data Supports Downside – Technical Analysis Giving Mixed Signals
Gold has seen further downside today and continued to pullback from the 11 week high. January printed a move higher of 11% on the month which was the biggest monthly gain since August 2010.
Gold Down On Strong U.S. Data
US economic data has been significantly stronger recently and quantitative easing may not be required in the near term after all. This scenario has seen the strong drop in the price of Gold on Friday as the bulls were queuing to get out of the door and liquidate positions in the precious metal. An increase of 243,000 was much better than previously forecasted estimations which were closer to 150,000; combine this with the statistics that show unemployment dropped from 8.5% to 8.3% and it is easy to see how the instant reaction after the jobs data was to unload gold. Prior to this the Federal Reserve Chairman Ben Bernanke had stated that interest rates could be kept at record lows right up until 2014 and this was the beginning of the flows of cash moving into gold, as it is a hedge to protect against inflation. The rally in Gold come after a retrace was seen from the $1500 area and at one stage it looked liked a bearish phase was a distinct possibility. If a continuation of the solid data is forthcoming gold could potentially see a decline to the late 2011 lows around the $1500 mark.
Greece and Gold
The Greece situation is seemingly deteriorating with the Troika, which consists of the IMF, ECB and EU Commission, looking to force Greece into accepting tougher austerity measures. A worst-case scenario of a complete breakdown in negotiations would provide a scenario where Gold could once again potentially resume the longer term uptrend and head towards a new record high. Investors typically purchase gold as a hedge or against economic and political crises and this scenario would fit the bill. Policy makers will however be doing everything in their power to avoid this kind of scenario but the situation should be monitored very closely.
Gold Technical Analysis
- From a technical perspective gold is now trading just above the tenkan sen (mid-point of the highest high/lowest low over the prior nine periods) and ascending trend line seen on the daily timeframe chart below.
- Price is above the kumo and this gives a technical bias to the long side.
- In contrast to the above there has been a bearish engulfing candle from Friday, a key reversal, which gives a bearish bias in this respect.
- A break below the ascending trend line would add bearish weight in the near term.
- Selling gold would be countertrend and therefore nor advisable if the trader is looking for “with the trend” opportunities.
Taking into consideration all of the above we see the near term outlook for Gold as being without clear direction.
Gold Daily Ichimoku Chart