Gold prices managed to break away from the 1,405 soft resistance today following a strong bout of safe haven flows during Europe open. There isn’t any clear reason why European traders are so risk averse currently, especially since German IFO survey numbers were all slightly better than expected, with Business Climate coming in at 107.5 vs 107.0 consensus estimate, Current Assessment at 112.0 vs 111.0 and Expectations 103.3 vs 103.1. It seems that market is getting jittery over the Syrian political unrest, with USA rumored wanting to step in with military intervention and Russia warning US not to do it.
The question that we need to ask is whether this risk aversion is going to continue or are we simply seeing a one time panic revaluation of the market which will simmer down eventually. As the Syrian rumors came in during late US/ early Asian session, it is interesting to see European traders reacting so strongly to such a news. Perhaps we should wait for US trading session a few hours later to help determine if the world is still panicking over the same issue. But whatever the case may be, Gold bulls will need to break the significant overhead trendline in order to proceed higher further.
The importance of the descending trendline can be seen via the Weekly Chart. Currently we are at the confluence between Channel Bottom and the floor of Consolidation Zone found between late April – early June. If we manage to break into the Channel, we could see acceleration towards Channel Top which happens to be the confluence with the same Consolidation Zone ceiling. Failure to do so may also trigger huge selling momentum as hedge funds that have been supporting the rally from 1,200+ may see this as the end of the road as far as their Gold punt go. Therefore, we are at an important junction for Gold right now – either way we are slated to see huge movements in the next few weeks.