Gold prices are on the move higher on Friday as stronger crude oil prices and a weaker dollar index are lending support to the yellow metal. The market is currently trading up by about $6.00 per ounce in quiet trade. All things considered, this was a pretty quiet week in the gold market.
In fact, with the exception of the selling seen during the trading day on Wednesday, the gold market has been tightly range bound trading from approximately the $1260 level to the $1300 level. Although markets can go sideways for long periods of time as they consolidate, we do not expect this to be the case with gold. The big question now is which way will it break out-to the upside or to the downside?
Ben Bernanke again took center stage this past week discussing the Fed’s monetary policy. Bernanke once again reiterated that the Fed will remain flexible in its policy making. There did not appear to be anything new of significance coming out in his remarks, and in fact it just seemed like more of the same. It did seem however, that Bernanke has been taking special precautions in his language to not upset the stock market. Any hints of tapering sooner rather than later could spook investors, and could cause a decent correction in stocks.
Demand for physical gold bullion has picked up a bit. Although demand has remained fairly steady, there does appear to be some increasing interest currently as the gold market attempts to stabilize. Some are now wondering of the low in gold prices is in. It is clearly way too early in the game to make this determination however. Market tops and bottoms can be more of a process than a single day’s price action. The bulls have done a good job in gold recently as prices have consolidated.
Trade above the 20 day EMA again is noteworthy and could set the stage for price acceleration to the $1350 area. We believe that a solid close or consecutive closes above the $1300 level will attract more fresh buying as people may assume a bottom has been reached. It is also important to remember that a large short position still exists in gold, and that should prices continue to rally more of those positions will have to be unwound thus potentially fueling prices even higher.
Trade above the 50 day EMA in the $1334 area could be crucial to this market, and a successful test of this area could squeeze out remaining shorts. A failure at this level however, will likely send in fresh sellers and the downside pressure on gold could be enough to send it back for another test of the June lows.
