Gold prices rallied strongly during US opening hours yesterday, breaking back into the 1,330 – 1,345 consolidation range. This seems to go against the broader market where Stock prices were depressed due to increased Fed tapering speculation. But the rally isn’t without cause – market is getting jittery about US Government debt ceiling issue, which was once again brought to their attention following the Senate vote to pass a stopgap funding bill to avert a partial Government shut down as early as in 6 days time.
However, it should be noted that the Senate vote went through 100 – 0, highlighting the urgency of the issue and suggesting that both Democrats and Republicans are agreeable that this needs to be resolved. Hence, given this outcome, it is highly unlikely that we will reach an impasse that will result in US defaulting on their current debt. This is perhaps the reason why Treasuries prices are pushing higher and not lower, as market simply doesn’t believe that the US Government will willingly let itself go bankrupt. Nonetheless, this is not stopping Gold traders from thinking this way and sending price up.
Considering that Gold was the only asset class that reacted to the US budget talks, it stands to reason that the likelihood of a continued upward trajectory is low, as this is not a strong fundamental narrative shared by all the other market players. Furthermore, technicals suggest that prices are remaining bearish, with Stochastic readings actually signalling a bearish cycle with rally unable to break through the 1,345 consolidation channel (not seen on chart) top. Should prices break below 1,330 again, we could see strong bearish acceleration towards 1,300 with 1,315 – 1,317 providing interim support. On the bullish front, should prices manage to pull off an unlikely 1,345 break, we could see acceleration towards 1,360 – the soft consolidation floor of 19-20th Sept. But even then, given that reasons for rally is tenuous, it is also unlikely for price to breach into the aforementioned consolidation zone.
Weekly Chart shows the potential for price to mount a bullish attack of the Channel Bottom especially if prices close above 1,345 by the end of the week. This is corroborated by Stochastic with the possibility of Stoch curve rebounding higher from current levels. This outlook is in line with what Short-term chart tells us, as overall direction for Gold in the long run remains bearish even from a technical perspective, and we could yet see another bearish rejection from Channel Bottom.
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