It has been a while since we have seen a "13" handle in front of Ol' Yeller, three months to be precise! Gold has managed to stay firm and avoid any strong bout of profit taking. Dips are being eagerly bought and retracements are very shallow. Shorts are grudgingly now giving up the ghost while some new longs are pushing into the path of least resistance. I get the distinct impression from watching the recent price action that this looks a lot like reluctant short covering on the part of some more enduring bears who are getting out, not in a panic but methodically as the market refuses to break down.
So far the combination of short covering ( dominant feature) and new buying has taken the metal through the $1300 level and right smack dab to the 200 day moving average. If the bulls can gore their way through that, I do not see much chart resistance until near the $13215 region. Beyond that lies $1350 - $1360.
The ADX is very strong and rising in a steady fashion indicating the presence of a good uptrend underway. The break above $1275 seems to have kicked this particular indicator into a bullish posture. Positive Directional Movement is strong. The market still looks overbought to me but momentum is with the bulls and until they see some sort of halt or blockade to further upward progress, there is not much in the way of incentive to force them to book any profits at this point.
Downside support remains near $1275 - $1270.
The drivers for gold appear to be what they have been for a while now - falling longer term rates on Treasuries which are contributing to weakness in the US Dollar. The USDX started off this month near 81.40 and has fallen practically every day this month hitting a low near $80.30 as I type these comments.
As long as the Dollar is struggling, the commodity complex as a whole is getting a bid as we are seeing further signs of our former macro trade in which hedge funds/index funds and assorted large traders are buying tangibles on the heels of Dollar weakness.
Emerging market concerns continue to underpin the gold price as well although Goldman had an excellent note out today that I saw running on the wires about fears of a slowdown in jewelry demand from the far East (Indonesia, Vietnam, etc,) if this credit/currency issue were to intensify.
Thus far gold has been serving as a sort of currency refuge but one wonders how price sensitive or not, gold buying from that corner of the world might be impacted were those regional economies to begin experiencing any economic slowdown coming as a result of all this.
The gold shares had a very nice day today as more and more buyers are showing some interest in the sector now that the gold miners look to have finally gotten the message of the market and gotten their respective houses in order. It took the snot getting beaten out of their stock prices to wake up the rather sloppy management that has been plaguing many of these companies. They now appear to be taking a hard look at the expense side of their books.
Not much more to say about this market for now as time constraints are harassing me and truth be told, there is no fresh economic news at this point. Crude oil remaining above $100 ( WTI), soybean prices soaring and more commodities showing signs of having bottomed out, gold is getting a wind at its back as the Goldman Sachs Commodity Index is closing in on its late December high near 642. If this index shows an upside breakout, rest assured gold will be moving up right along side of the overall sector.
If the index hits that resistance zone and retreats, look for profit taking pressure to show up in gold.
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