Gold prices recovered strongly during Friday’s US session following a lower than expected Non-Farm Payroll print. Prices jumped from pre-announcement level of 1,360 to 1,390 within the first few minutes post announcement, thus answering our question of whether Gold is still influenced by QE Tapering fears. It is clear that last Friday’s increase was the result of market believing that a lower than expected NFP number would convince the Fed to rethink their tapering timeline, which calls for a tapering action in 2013 and a cease of all stimulus by end 2014. Fundamentally, Gold prices should not be affected by QE as the risk of inflation is non-existent, but obviously market speculators do not care, buying Gold on the belief that QE3 will not end soon even though the original inception of QE3 did not push Gold prices higher at all. This irrationality does suggest that bulls are still strong though, as speculators could be simply finding any reason to buy, a very important observation considering that the rally from 1,200 was purely fueled by Hedge Funds purchases. This also imply that bullish momentum may not be over yet, despite technical bearish pressures shown below.
Technically speaking, we do have a bearish reversal Evening Star pattern on our hands. Despite the strong late rally, Friday’s closing level remained lower than Monday’s opening levels, giving us a mild bearish candle for the week. Furthermore, we remain below the descending Channel’s Bottom and 1,400 round figure key resistance. Stochastic readings continue to look bearish with readings currently pointing lower. A proper bearish cycle signal is not yet in play but we could be seeing one coming in the next 1-2 candles especially if price break the 1,330-1,345 support band.
This morning’s early decline showed that market is looking at this bearish setup, with Gold prices quickly falling from just under 1,395 to a low or 1,385 within the first 10 minutes of trading. However, price did not see any strong bearish follow-through, in line with the broad bullish sentiments hinted by the NFP reaction. This resulted in price rebounding quickly higher, finding support around 1,387, trading sideways currently. Stochastic readings suggest that a bearish cycle should be forthcoming in the near future. If 1,387 is broken, it is likely that Stochastic readings will fall below 80.0 to give us the bearish signal that we need, and hence act as a confirmation for a breakout move towards 1,365 – 1,373 consolidation range.
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