Spot gold has been trucking ahead in 2014, closing with gains in nine of the 10 weeks so far this year to notch gains around 12 percent through Friday. A look at the technicals says that the precious yellow metal could be in for a tough going without some significant catalysts as it reaches $1,400.
Gold has been getting some love with bottom feeders playing the technical low at the end of 2013 as gold sunk near $1,200 to form a “double bottom” pattern. As gold hit that level in the summer of 2013, a bounce followed to as high as $1,434 in September. Economic worries and geopolitical tensions have certainly played a role the last couple months with concerns about the sluggishness of the U.S. economy and more recently the geopolitical tensions between Russia and Ukraine putting a shine on the metal as a safe haven asset.
However, futures for gold closed down on Monday as the sanctions placed upon Russia for its efforts to annex Crimea amounted to a finger-waving lecture with little economic repercussions. Further, after equities took a lumping last week, generally upbeat economic data from the Federal Reserve has helped spark a Monday rally, luring traders from gold back into stocks. The economic data plate is pretty full this week, which could put some brilliance back on gold, but aside from a serious catalyst, technical traders may be looking to bank some 2014 profits as gold stares at resistance.
For starters, $1,400 provides a psychological barrier; “whole” numbers always do. Moreover, this daily chart shows a clear resistance point sitting at $1,420 for spot gold. Gold poked above that level twice in intraday activity at the end of August, but has failed to close above that mark since May 14, 2013. That spot is less that 3 percent from Friday’s closing price. On the bright side, there is some technical support at $1,360, but if that point fails, it wouldn’t be surprising to see a consolidation back to $1,320.
A look at the weekly chart for spot gold tells essentially the same story, only it reinforces the idea that $1,400 will be where resistance starts to stiffen. That’s only 1.3 percent from Friday’s close and reason for traders to “sell at resistance.” From a weekly vantage point, spot gold hasn’t closed above $1,400 since that level was a support point in the first week of last May. Again, support comes it at $1,360 in the weekly chart, but a fall closer to $1,300 looks possible should that area falter.
For those that want to see the shiny side of the gold coin, IF spot gold can break the resistance point at $1,420, it looks to be relatively clear sailing up to about $1,480. All-in-all, gold is still looking bullish (hard to argue with 90% green weeks in 2014), but could see a pullback to take a breather before it takes another run at the initial resistance.
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