Gold Technicals – Remaining Bullish Despite 1,400 Rejection

Gold Prices rallied up strongly last Friday following a larger than expected fall in US New Home Sales. This is the first time in the past 4 months which New Home Sales actually came in lower than expected, and the first time in past 6 months which the figure has fallen below the 400K mark. If we were to be pedantic about it, we will find out that this is also the largest miss (-93K) since June 2010 (-124K), and the 4th largest miss in expectations since 2007 . Speculators who saw this dismal print started buying Gold aggressively, believing that Fed will be less willing to start QE Tapering after the latest bout of weakness in Housing Market.

However, looking across other assets, it seems that Gold’s rally is unique. This is not saying that other assets didn’t rally on the easing of Fed’s Tapering fears. 10Y T-Note prices shot up higher, breaking the 125.0 resistance level following the news, while USD weakened across the board with EUR/USD, AUD/USD and GBP/USD rallying. Even equities pushed higher following the news even though the numbers are inherently bearish. All these point to the fact that market is pricing in a lower chance of Tapering by Fed soon. Nonetheless, Gold’s uniqueness is not the fact that Gold prices pushed higher, but rather that Gold was the only asset that managed to break its weekly ceiling on the news event, suggesting that prices were more bullish then the rest of the other assets.

CFTC Commitment Of Traders

This is a good sign for Gold bulls. Prices have been predominantly running higher due to hedge funds buying up Gold positions. Last Friday’s bullish reaction suggest that such funds are not done with their buying, which is good news for longer-term bullish movements. The latest COT numbers showed further advancement in Net Long Positions, corroborating with the assertion.

Hourly Chart

However, 1,400 continues to look menacing for bulls. Friday’s rally stopped short of clearing the vaunted 1,400 level, while today open saw Gold gaping higher above 1,400 (most likely due to bullish reaction to the COT numbers) but ultimately bears won, sending price quickly lower back under 1,400 and even below the slight consolidation seen on Friday closing.

Nonetheless, bullish pressure continues to build up nicely. Stochastic readings that signaled a bearish cycle has since flattened out and may reverse back up again. Furthermore, it is possible that Ichimoku’s Senkou Span A will provide good support against any short-term decline just as how prices were kept afloat during early US session last Friday before the huge rally happened. If bulls manage to hold around current levels for the next few hours, we should be able to see Kumo adding bullish pressure higher. Even if we dipped lower slightly, price may be able to find some support around 1,385 which is the swing high of 19th August and confluence with the Kumo ahead during US opening hours today. Hence it is reasonable to think that prices will be able to stay afloat in the short-term.

A bigger threat would actually be the fact that Open Interest has fallen week on week for the 4 weeks. This suggest that a portion for the higher Net-Long position ratios can be attributed to lower number of bears. There is the risk that bears may reemerge once again should prices becomes higher. While this does not invalidate current bullish momentum, this is important to consider given that long-term technical outlook for Gold is still bearish as long as price stays below 1,530.

More Links:
EUR/USD – Settles Under the Key 1.34 Level
AUD/USD – Rallies back above Key 0.90 Level
GBP/USD – Eases back under Key 1.56 Level

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