Gold Bugs Rejoice as Prices Near Major Rally Point

Gold bugs have something to rejoice about this week as a turnaround in the sentiment towards the commodity markets signals further gains ahead for the embattled metal.

Pilloried gold bulls have been pointing to the disjointed valuation of the metal for some time and might finally be seeing their views gain credence as Gold maybe turns the corner. Last week saw a significant rally for the yellow metal, as it moved to close around the $1157 an ounce mark. The rally has been primarily an extension from the softer US NFP result at 142k, as well as sliding sentiment for the US Dollar. Subsequently, Golds price action now bullishly resides above the 100-Day moving average.

The US Federal Reserve also announced on Friday that they see growth within the US economy falling well below the historical average for the remainder of the decade. The central bank’s forecast seems to indicate that growth will fall within 1.5% -1.7%, which is well below the 50 year average of 3.1%. The Fed’s statement took many in the markets by surprise, including large hedge funds, with Gold being the net beneficiary given the negative correlation between the metal and the Dollar.

In addition, last week’s CFTC’s weekly commitment of Traders (COT) data indicated an increase of nearly 20% in Gold long positions on COMEX. It would appear that a bullish sentiment is readily swinging towards the precious metal. This isn’t unexpected given the significant disconnect between derivative and physical gold prices, which was always likely to flow through to the actual markets.

Looking ahead, the focus will remain primarily on the strength of US labour markets with further unemployment claims figures due out on Thursday. The previous unemployment result was 263k claims, but given the current fragility of the US economy, the result could provide for a surprise. The US Core Retail Sales result is also due and should be watched closely given the Fed’s desire for consumer spending.

From a technical perspective, Gold has risen strongly to break through the bearish long-term trend and the 100-day moving average. RSI is also trending higher and forming new highs within neutral territory, whilst the 12 and 30 EMA’s continue to provide bullish signals. Support is currently in place for the pair at 1117.54, 1098.46, and 1079.69. Resistance exists on the upside, at 1159.97, 1169.92, and 1205.68.

Ultimately, Gold’s bullish resurgence is likely here to stay given some of the fundamentals at play within both the precious metals markets and the US economy. However, be wary of the US Federal Reserve, as there just might be more to their agenda then simply supporting labour markets and inflation.