Gold is bouncing back. According to the World Gold Council, which has released its last statistics recently, the demand has surged on the third quarter: from the jewellery industry first, but also from investors through certificates and ETF’s.
The physical demand has surged in Europe and in the US, but despite those flows prices remained between $700 and $800 an ounce on the market during the last month. After several months of correction and sharp countertrends, the last 4/5 weeks have been a consolidation phase.
Despite the turmoil on the finance sector and the banking crisis, the equity markets’ plunge and the growing global recession, gold prices did not soar as it could have been expected. Indeed, the deleveraging of the hedge funds that have been facing large redemptions has capped prices on the upside.
Last but not least, the US Dollar strengthening and the lower concerns about inflation (as commodity prices all fell sharply) have weighed on Gold prices.
Technically, the price action found some support just below $700 (point D on the chart), which is a previous low level tested several times in 2007 (points A, B and C). The main support level, around $635, has not been tested. This level is a previous high posted in late 2005 and that became a new low several times in 2006. On the downside, gold prices are therefore well supported by those two levels ($700 and $635).
This morning Gold is trading around $820, which is more than 16% higher than 12 days ago. A further rebound is expected. On the upside, the main resistance is the line that goes through the lower highs posted since the historical peak of March 2008 (points E, F and G). The target for the price action is consequently just below $900.
On the short-term chart, the indicators argue indeed for a further rebound. First, the Bollinger Bands are bullish as sharp price changes tend to occur after the bands tighten, as volatility lessens, which is the case here (the bands therefore volatility tightened in November during the consolidation phase). Second, when prices move outside the bands, a continuation of the trend is implied. This is also the case here.
The MACD has also triggered a positive signal two weeks ago, and its rise shows that some bullish momentum is building up.
In this scenario, the level of $890 may be the target and the first significant resistance on the medium-term.
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