Gold Technicals – Bullish Recovery Underway but Overall Bearish

Gold printed the first W/W gain in 5 weeks after price recovered from the recent sell-off. Prices retreated a little bit on Friday after a sudden burst of bearish pressure, but the week still ended more than 4.2% higher than before. The resurgence of gold demand is not surprising considering that CFTC’s Commitment of Traders report showed that financial institutions are lapping up Gold on the cheap after the huge decline in prices. Prices are also supported by increased in demand from India and China, with physical gold sales jumping by as much as 150% in some regions. According to reports, the increase in demand from both countries may be able to make up for the decline in ETF gold products, which has seen huge liquidation in 2013.

Central Banks remain net buyers of Gold, despite the recent scare from Cyprus being forced to clear their Gold reserves by the ECB. Faced with the prospects of the weakening USD, Central Banks continue to buy gold even during the 1,800 – 1,900 levels in order to diversify their reserves. Furthermore, despite losing money from the 2012 purchases, some Central Banks are still in the black with weighted average price of gold much lower due to historical purchases, which will help to ease the paper losses a little.

Hourly Chart

From a Technical perspective, bullish momentum is still in play, however short-term bearish pullback can be reasonably expected with Stochastic readings appearing to form a peak just when price is hitting the ascending Channel Top. Also, current price levels have been forming lower highs since 26th April peak, and suggest that short-term weakness may be at play.

Weekly Chart

Weekly Chart shows price finally touching the descending Channel after breaking out of it 3 weeks ago. If price is able to re-enter the Channel, the consolidation found between May – June 2011 may be in play, and allow price to test the confluence between Channel Top and the 1,570 support turned resistance. However overall bias remain bearish and may only be alleviated with the break of 1,570.

Fundamentally, it is important to note that none of the observations stated above suggest that Gold price will be higher than before, but are merely mitigating factors against further Gold slide. In this regard, there isn’t any strong fundamental push right now that could give bulls the impetus to pull a full bullish reversal out of the hat. Recovery is certainly possible, as much of the sell-off that we’ve seen below 1,500 can be attributed to market’s knee jerk reaction after seeing a few large sell orders during the period. However, as market return to stability, the previously in play bearish Channel (and bearish bias) should be assumed to be back, rather than assuming that price is now back on a bullish trend. With that in mind, do not be surprised to see price being unable to break back into the descending channel, but instead of dropping sharply after, choose to straddle lower slowly just as what we’ve seen since Sep 2012.

More Links:
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USD/JPY Technicals – Bearish breakout continues

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