Gold Drawing a Line in the Sand?
???? Fundamentals
Gold futures are higher this morning, after both the Federal Reserve and Bank of Japan indicated that they are going to press-on with stimulus programs. Futures had fallen the previous four sessions. The Fed has stated that it should press-on with its bond buying programs, while across the Pacific, the BOJ indicated that it will take whatever means are necessary to slow down deflation.
In addition to getting a boost from stimulus packages, Gold has seen some safe haven buying, likely due to the US sequester. This is, however, a minimal boost, as the sequester would likely have a negative long-term impact on the economy, which would probably mitigate inflation risk.
The physical market for precious metals had been soft, since several large players either lightened their Gold ETF positions or eliminated them altogether. It appears that Gold traders are among a small segment of traders that can see what is directly in front of them: despite every effort from the Fed, ECB and BOJ, these central banks (among others) are having a difficult time stimulating any growth. What happens when the training wheels come off?
???? Technical Notes
Turning to the continuous chart, we see the April Gold contract coming down to test the 1550 level. After the initial test of the area, prices bounced short of testing the area again.
The chart shows a possible W-bottom setting up, which would be confirmed by a move above 1615.50. If the pattern is confirmed, Gold may test the 1670-1680 area. On the downside, prices must hold the 1550 level, or the market could see heavy selling. The RSI indicator remains oversold, hinting at near-term strength.
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