The move by the spot gold price through the psychologically important $900 per ounce level  last Thursday, was reinforced on Friday by a combination of both technical and fundamental factors.    China’s announcement that it now holds over 1000 metric tonnes of gold reserves, up from 600 tonnes in 2003 fueled speculation that other central banks may follow suit, and the worry of a shortage as investors turn to the physical metal as opposed to gold backed paper assets on concerns of a serious break down in the global financial system, all added to the bullish tone.  Pure metal in the form of Krugerrands, Maple Leaf coins, or the “five tael biscuit” particularly favoured by the Chinese, entail no counter-party risk, and will all help to boost the gold price.  In addition as investors continue to be nervous until the release of the bank stress test results, the price of gold should maintain its bullish sentiment.

From a technical perspective the price of gold on Friday broke above the 40 day moving average making this a full house on the week with five straight days of gains, and closed on Friday night marginally above this average, adding to the bullish momentum.  In addition gold prices on the week closed above both the psychological $900 per ounce level and, more importantly, through the resistance in this region which now provides a platform for a move higher.  For any sustained longer term move in spot gold we will need to see a break through the $950 per ounce price point and if sufficient momentum is maintained then we could see a run back up to re-test the four figure region once again.  With spot gold prices now above all three moving averages and with some support below, we should see a continued move higher, and for today’s gold trading my suggestion would be to attempt small long positions intra day with a stop loss below the $865 region.  My view is supported by the weekly gold chart which closed with a strong bullish engulfing candle which should provide us with some good trading opportunities longer term moving forward.

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

Support:    $903.75 (Friday’s low)                                      Resistance: $929.12 (high of 02/04/09)

Support:    $889.45 (yesterday’s low)                                   Resistance: $922.77 (high of 04/03/09)

Support:    $881.40 (low of 22/04/09)                                   Resistance: $913.90 (Friday’s high)