Spot Gold Prices - Weekly Gold Chart 8th June 2009

A strong rebound in the US dollar and much better than expected NFP data have been cited as reasons for the sharp fall in the spot price of gold as investor appetite for safe haven assets appeared to falter.   Whilst it is certainly true that the fall in the unemployment data exceeded all market expectation inflation fears are still a reality and the only conclusion we can draw is that markets will be volatile for some time to come and spot gold’s journey towards the $1000 per ounce price point will be a very bumpy ride.   Following the employment numbers,  spot gold lost $23.21 per ounce on the day, closing the day with  a wide spread down bar which closed below both the 9 day and 14 day moving averages.

As it is the start of a new trading week, and given Friday’s volatile price action across many currency and commodity markets, I thought it would be useful to take a look at the weekly chart for gold prices, in order to provide a different perspective on Friday’s big price move, as we can sometimes forget that in looking at the daily chart, there is a bigger picture which we need to keep in mind when trading longer term trends. The first, and perhaps most obvious point is that the $1000 per ounce price region seems to be a defining area, with three failed attempts previously, and with a possible fourth now in progress, so clearly a breach of this level is now taking on an increasing significance for the longer term, rather than simply being a psychological barrier. This price chart has many similarities to the USD/CAD currency pair where we saw several failed attempts at 1.3000 before seeing a steep and dramatic fall. Whilst I am not suggesting we will see the same occur in gold prices, it does indicate the strength of these price points particularly when associated with failed attempts to breach them and then to hold above.  The second point to note is that after four weeks of strong gains it is hardly surprising to see a short term reversal in the price of gold, with the weekly candle finishing as a down bar, and with a deep upper wick, suggesting that we could see further falls this week. The positive side of the weekly chart is of course that we have some way to go before prices break through and/or below the 9 week and 14 week moving averages – if this does occur then we could see a deeper move, possibly as far as $925-$930 to re-test the support at this level.

In summary, whilst Friday’s fall was a shock to the system, in the context of the weekly chart it was no great surprise, and we therefore need to keep this in mind when trend trading for the longer term. With the fundamental data now starting to indicate a possible slowing of the recession, then in my view we are likely to see further days of extreme volatility over the next few months as fundamental news is released which confirms this picture. Indeed many analysts have some difficulty in explaining the surge in gold prices recently, against the backdrop of a return to risk appetite In my view at any rate there is only one answer and it is simply this – that fears of deflation, have now given way to the fear of a dangerous snap back in inflation as the economy recovers, catching everyone unawares, so as I said earlier, we could be in for a rough ride trading gold in the next few months!

The short and long term trends are bullish while medium term trend is sideways.

Support:    $952.44 (Friday’s low)                                      Resistance: $982.80 (high of 04/05/09)

Support:    $944.00 (low of 28/05/09)                                   Resistance: $967.82 (9 day moving average)

Support:    $940.60 (low of 26/05/09)                                   Resistance: $962.42 (14 day moving average)