Gold pushed 2.2% higher yesterday as the risk off appetite in stocks drove safe haven assets higher. SPDR Gold ETF received the largest inflow of funds since QE 3 was introduced back in September 2012, highlighting the sudden amount of interest in Gold that allowed the precious metal to hit a high of $1,265.64 per ounce during early US session – forging the longest rally in 16 months.
Prices have since pulled back, but we are still above the ceiling seen on Monday. Furthermore, Stochastic readings are within Oversold region, increasing the likelihood that the resistance turned support will hold, and a rebound back towards 1,268 and beyond will be possible. A rebound from here will also be in line with bullish momentum that has been in play since the turn of 2014, but all these technical signs do not ease concerns that current rally doesn’t seem to fit long-term fundamentals.
Looking at daily chart, we can see that Gold prices have been trending lower ever since the recent peak made on Sep 2012 – after the announcement of QE3. Prices have been mostly bearish for 2013, but there were still significant bullish recoveries along the way due to short squeeze/institutional speculators buying up Gold at “bargain” prices. Considering that nothing major has changed in fundamentals, the reason for rally seen in 2014 most likely would be of the same mould. This would mean that the likelihood of prices pushing above the previous swing high would be low.
Nonetheless, momentum is still pointing up for now, and daily chart is showing a bullish breakout from Channel Top. Hence, if price manage to breach 1,268, we could see overwhelming technical pressure that can bring us up to 1,300, but beyond that may be difficult considering that Stoch readings are close to Overbought. Furthermore, prices will ideally need to clear above 1,400 before current long-term bearish pressure can be negated. Couple this with bearish fundamentals, it would be hard to maintain a L/T bullish narrative.
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