The gold market has continued to show signs of underlying strength this past week. Although gold prices essentially traded in a range from $1360-$1380, the fact that prices have not given up a lot of ground is bullish. In fact,following this week’s FOMC minutes we don’t think there is any shred of doubt in anyone’s mind that the Fed’s QE is coming to an end-perhaps next month or the month after but by year’s end. Many analysts, pundits, and commentators had said that this would likely be the end game for gold and silver. Well, thus far nothing could be further from the truth.
The precious metals are finally seeing some bullish catalysts to attract fresh buyers into the market and run out more shorts. These bullish inputs include the ongoing crises in Egypt, the developing Asian currency crises, higher crude oil prices, and a stock market that is starting to look very shaky in an environment where interest rates are rising very rapidly.
All of these are adding to gold’s attractiveness as a flight to safety instrument, and as many investors cash out of the stock market here we feel that gold stands to benefit. What we find particularly interesting is how gold prices are behaving with QE winding down. Often times in markets, when a development occurs that should be strongly bullish or bearish, and the opposite happens, that “opposite consensus” move can be extremely powerful. For now, it appears that is what we are seeing in the gold market. A QE ending contrarian trade if you will….
Looking at the charts, there could potentially be a lot more upside for gold in the cards here. The gold bulls need a breakout above resistance at Monday’s highs around $1384. Should this upside breakout materialize, then we could see a quick move to the $1400 level. Assuming the bulls take out the $1400 mark, we feel it would clear the way for gold prices to test their 200 day EMA at the $1470.50 level.
Interestingly, as this post is being written gold prices are on the move and have now taken out Monday’s highs and appear to be off to the races. In fact, we could gold prices hit $1400 today. This has the looks of a market correcting itself and looking for “fair” value. That value could be quite a bit higher. Should gold prices move beyond the $1470 area and the 200 day EMA, we would likely see a retest of the breakdown level at the $1550 level.
Chart Source: QST
