Gold Technicals – Case for stronger Demand but Long-term Technicals still down

Gold prices are trading higher after the Cyprus bailout announcement. This rally is in line with the rest of the safe haven assets such as Yen, USD and Treasuries as investors were afraid that the bailout terms may set an ugly precedent which may affect future bailout requests.

Hourly Chart

From a technical perspective, there are strong residual bears lurking around as seen from the quick pullback after the morning gap. Price broke under 1,597 to reach Friday’s closing levels before bulls ultimately prevail, sending Gold to a mini rally above 1,600 round number. Price has since stabilized and is consolidating between 1,602 and 1,607. The rising Kumo and confluence with 1,602 interim support will help to rebuff short-term downside pressure. Stochastic readings are currently heading towards Oversold region, adding more bullish pressure which will help to fend off bears.

Daily Chart

Daily Chart is still not looking bullish. Price is heading into the falling Kumo, which will provide resistance. The failure to test the previous swing high back in late Feb also look bad on bull’s effort. Stochastic readings are also heading towards the Overbought region, hinting that current rally (or more aptly recovery from recent lows) may be ending soon. Even if price manage to rally up from here, a push above 1,650 may be needed in order to see bullish accelerations, while a push above 1,695 may see price negating the downtrend from 5th Oct high. Currently price is far away from stamping a strong bullish revival simply based on the Cyprus news.

Fundamentally, there are good reasons that may stoke demand for Gold in the future. The proposed Cyprus bailout is bringing the fight not just to investors, but common folks who may not have even invested a dime in their entire lives. This is akin to fighting unarmed civilians, which is definitely frown upon. If savings are no longer safe, where else can you park your cash? Other than withdrawing your money and placing them under your bed, the currency that is recognizable during war time becomes much more attractive and we could see your average man on the street choosing to keep his savings in Gold rather than in banks. Is this thinking going to be prevalent in the days to come? Well, members from the ECB has come out to affirm the market that Cyprus is “unique”, and such arrangements is unlikely to happen with Italy, Spain or even Greece. There is even the odd chance that Cyprus may be able to reject the bailout outright in a game of chicken with the Euro-group leaders. Keep a watch on today’s voting result, and the price action that follows for a better indication of inherent bias for Gold in the market.

Cyprus Parliament scheduled to vote on proposed Levy at 16:00 GMT

More Links:
USD/INR – RBI Rate Cut as Growth Outweighs Inflation Risks
AUD/USD – RBA losing dovish influence
GBP/USD – Consolidates Around 1.51

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.