Gold Technicals – Heading Higher with 1,430 resistance

They say that in times of war, gold prices should increase. This maxim has been thrown around since the beginning of time and everybody simply assume it is true. The truth is that this statement has never really been truly tested in modern fiat currency era where global trade is denominated in USD, not the weight of gold or any other commodity. Well yesterday we had the perfect opportunity to find out, and unfortunately the maxim doesn’t appear to be valid now. Yesterday saw a fake rumor about White House being bombed by terrorists. the Dow traded 150 points lower immediately, while the S&P similarly shed 15 points. Even AUD/USD fell 30 points on the news, but somehow Gold remained flat, totally immune to all the actions. The rumor was confirmed to be fake shortly after, but this would have surely been a declaration of war should it be true, and it is highly interesting to see the lack of reaction from a commodity that has been touted to be the safety asset when market is panicking.

Hourly Chart

Yesterday’s revelation show that Gold is no longer considered a safe-haven asset, but it is also strange that Gold price didn’t drop like a risk asset should. Perhaps the reason why Gold didn’t fall may be due to current strong bullish sentiment that is behind it. Large sell orders are basically absorbed by equally large buy orders waiting in the wings as everybody starts to look for bargain buys after the largest sell-off in recent years. Last Friday’s Commitment of Trader report compiled by CFTC showed that Financial Institution are holding more gold now that price is actually lower, and it will not be too far fetched to imagine that Gold demand remain high.

From a technical view point though, price is currently heading higher within a rising Channel, however price hasn’t really manage to break above the 1,430 ceiling, with 20th April high still casting a bearish shadow on current price action. Stochastic readings are also pointing lower, even though readings are still slightly below the recent highs made on 16th, 17th and 20th April. Does this divergence suggest that we can ignore current bear cycle indication? It is tempting, considering current bullish backdrop, but nonetheless there may be some truth in it considering that price is still facing 1,430 resistance.

Daily Chart

Daily Chart shows price hitting the 38.2% Fib retracement of the sell-off that started 2 weeks ago. Ahead of the 38.2% line stands 1,440 which is near top end of the consolidation found in Mar 2011. If price is able to break the consolidation ceiling, we could see bullish acceleration back towards the pre sell-off levels above 1,500.

Fundamentally, there is really no use of Gold as a resource. Warren Buffett famously said: “[Gold] gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.” Gold price is heavily dependent on investors demand and supply, and with the traditional safe haven relationship breaking down, there may be less and less reasons to buy gold at elevated prices. This would mean that the heydays of 1,900 are over, but 1,500 might still be doable if short-term demand from Financial Institutions are large enough to drive it higher from here.

More Links:
WTI Crude Technicals – Breaking 89.0 as sentiment shifts
AUD/USD – Lower than expected CPI raises Rate Cut expectations
NZD/USD – RBNZ Hold Rates at 2.50%, Wheeler Hawkish

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