Posted on February 25, 2013
Precious metals are trading higher this morning. Gold for April delivery is trading up $13 per ounce at $1585.9 while Silver for March delivery is trading up $.485 at $28.945. It would certainly appear that some fresh bargain-hunters have come out to buy today.
In addition, some short-covering is most certainly taking place as traders who caught the precious metals breakdown last week look to cash in and take some profits.
On Friday, Moody’s Investor Services cut the U.K. credit rating by one notch, and that in turn has kept pressure on the Pound. The markets seem to feel that the Euro currency could potentially see some volatility this week as results from the Italian elections come in. Perhaps the biggest potential mover of metals this week will be testimony before Congress by Fed chief Ben Bernanke.
The market has shown some concerns over Fed policy following last week’s release of the FOMC minutes in which members voiced concerns over ongoing stimulus measures. In addition, there did not appear to be any unity as to how to proceed. Bernanke is likely to address those concerns this week.
Many investors are of the opinion that he will take a more “Dovish” tone and stress to markets that stimulus will not be removed abruptly thus disrupting markets. Some do feel, however, that he is likely to lay more ground work going forward about the eventual removal of the punch bowl.
Given these events, gold and silver could see additional upside this week. Short-covering rallies can be fast and furious, so anyone still playing the short side should pay attention as the metals could easily retrace a good portion or even all of last week’s losses.
After briefly falling below the lower trading channel line, gold futures for April delivery have quickly rebounded putting them back into the descending price channel. In addition, the Relative Strength Index (RSI) has now come back up out of the severely over-sold reading and is threatening to continue higher.
Notice the distance between current prices and the 20 day exponential moving average (EMA) which is the blue line. During a trend, price will often move away from this trend line but come back to test it multiple times. Should we see gold make a move towards this trend line that could put gold prices back at the $1620-$1625 area and above the psychologically important $1600 level.
This could, in turn, cause more buying to come into the market should gold be able to hold the $1600 area. Should that prove to be the case, it could set up a re-test of the recent breakdown price level of $1665.