Gold Monthly Review – JULY 2009
Posted July 21, 2009on:
Gold’s rally ran out of steam before rechallenging $1,000/oz, prices are now correcting.
· Physical demand remains depressed and it may take lower prices to prompt buying, however, there may be considerable pent-up demand.
· The dollar’s slide has run into support and even a slight rebound in the dollar has already started to weigh on Gold prices.
· ETF and fund buying have also slowed, so Gold is having to absorb some less than bullish developments.
· Gold is consolidating and prices may dip further, before heading higher again. We remain bullish over the medium term.
Technical – Gold is looking vulnerable
The strong rally from $865/oz in April to the June high at $990/oz has paused and prices are now either consolidating before embarking on another up leg, or else are about to break lower. On 12th June prices broke through the neckline of a head and shoulders pattern, the target generated by this pattern suggests a possible move down to $896/oz. Since breaking below the neckline, prices have returned to test the neckline twice, but have not managed to close above it. On the downside prices were finding support around the 100 day moving average at $928/oz, but have now pushed lower. This increases the danger that prices are rolling over to the downside, having traded sideways over the past two weeks. On the upside it maybe that prices are building a higher base from which to attack the $1,000/oz area again, but it would take a close above the neckline at around $950/oz and a move up through resistance at $965.40/oz to make Gold look bullish again.
Summary – Gold prices are consolidating after their failure to overcome the $1,000/oz level, which has prompted some profit taking. However, the big picture outlook for Gold remains bullish and it is interesting that the gross fund short position has been falling during the recent price weakness. Overall, we feel that strong performances in other asset classes have seen some money switch out of bullion, but it could easily return. With industrial metals and equities still thought to be undergoing bear- market rallies, it would not be surprising to see safe-haven buying return to Gold once a correction in equities gets underway. However, our main reason to remain long term bullish is the prospect that competitive devaluation amongst numerous hard currencies will lead to further trouble for the financial markets. This is likely to keep interest in Gold running at a high level. As such, we would see any sell-off in Gold as a medium term buying opportunity.