The unholy trinity of fundamental events which traders have had to face this week, namely the Italian elections, the Ben Bernanke 2 day testimony ends today with the sequester, fiscal cliff, debt limit debacle in the US. The sequester is, of course, the automatic implantation of budget cuts following the breakdown of the fiscal cliff talks earlier this year.
And all of this drama is currently being played out in gold chart where this week we have seen some volatile price behaviour with a bullish recovery promptly snuffed out with a bearish reversal on Wednesday and Thursday (the Bernanke effect).
So what are the prospects today from a technical perspective? The initial recovery for gold was triggered by the isolated pivot low of 21st February which came in at 1554, sending the April contract higher back above the 1600 per ounce where it tested the 1620 level on Tuesday. By Wednesday gold had reversed sharply before closing on Thursday with a wide spread down candle, back at 1578 per ounce as the market prepares for today’s sequester.
Technically gold looks weak and with the failure of earlier this week at 1620 this is now a key level of price resistance to any further bullish move higher. Whilst we have seen some buyers come into the market on the daily chart, particularly with strong volumes on Wednesday, this appears to have petered out and indeed on the 3 day chart the volumes register as “no demand”. In addition both the daily and three day trend remain bearish and with a bright red heat map sentiment for gold is negative.
Any move lower today and in the next few days is likely to test support in the 1554 area which could help to build the platform for a rebound and, if this price point is breached we could see gold re-test the 1540 level of June 2012. However, given today’s fundamentals may simply trump the technical picture.
By Anna Coulling
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