Gold bugs finally had something to cheer about today as April gold futures finally awoke from their recent slumbers, trading higher in today’s session, and moving to test the $1600 per ounce price level. The catalyst for this modest recovery for gold was from the ECB, with suggestions that inflationary pressure was easing in the Eurozone, but hardly sufficient to spark a reversal in the longer term trend!
Throughout March, the precious metal has traded within an exceptionally narrow range, with the floor of potential support defined by the isolated pivot low in the $1550 per ounce region, and which was tested once again on Friday, with the market closing with a small hammer candle, and supported with buying volume. What is also interesting is the associated candle pattern that is now forming on the daily chart, with a potential pennant formation, centring around the $1580 per ounce level. As always, the longer that this price action continues, then the more volatile will be the breakout when it arrives. This is just like a coiled spring, and as the spring coils tighter, then the more explosive the price action, once the pressure is released. This is a classic pattern of a market preparing to breakout, but the question of course is in which direction ?
From a technical perspective, the short to medium term outlook certainly remains bearish, with sustained selling volumes on both the daily and the three day charts. In addition, the trends in both time frames are also heavily bearish, and with a bright red heat map, the outlook for gold is gloomy. Any move below the $1555 per ounce region is likely to see a much deeper move, possibly even back towards the $1500 per ounce region in the longer term.
The significance of the $1555 region cannot be underestimated, and this is self evident if we move to the weekly chart. Here we can see that in the last two years this region has seen five price reversals, helping gold futures to recover. So a key level. Once again, the weekly chart is heavily bearish, with sustained selling volumes in both time frames, and with bearish trends and a bearish heat map, the longer term outlook for gold bugs is gloomy.
All of this of course, is also against a backdrop of a year in which we could see a return to strength of the US dollar, which is likely to add further to the downwards slide for gold, and with little in the way of inflation, and risk assets attracting money flows, gold has certainly lost some of its shine in the last few months.
By Anna Coulling
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