Gold Going Its Own Way
Many traders in the precious metals sector were caught off guard over the past few weeks, as the expected “flight-to-quality” buying did not materialize when world stock markets posted steep sell-offs in the wake of recent credit crunches. In fact, Gold prices fell as large investors and speculators unloaded their positions to meet margin calls or to get “liquid” during the height of the stock sell-offs. This week, however, Gold has started to shine, as prices hit 6-week highs in Asia overnight. Strong physical demand is still seen out of India, and European Central Bank selling has been lighter than expected so far this month. Expectations that the Federal Reserve will cut rates at the September 18th meeting may also be a factor in the recent bullish interest for Gold, as any signs that the Fed has shifted its focus from controlling inflation could hurt the U.S. Dollar and therefore help support Gold prices. With the $700 level coming into view for the December futures contract, it might be a tempting target for Gold bulls. And if short-covering buy-stops lie ahead, this could provide further fuel to keep Gold prices moving higher.
Looking at the daily chart for December Gold, we notice prices holding well above the major moving averages. Momentum as measured by the 14-day RSI has moved into overbought territory, however, with a current reading of 75.96. The July 24th highs of $701.00 appear to be the next resistance point for December Gold, with current support found at this week’s lows of $680.10. In early trade, December Gold is trading at $695.10, up $4.40.
Mike Zarembski, Senior Commodity Analyst
