April 20th Gold Trend Analysis

n last nights web update resistance for gold was listed at 1497-1505 and the high so far today is 1505.50  —- support was listed at 1483-1489 and the low so far today is 1493.30

London Gold Fix $1505.00 +$10.00

Outside market forces have once again shifted to favor the inflation trade, as the US Dollar is weaker, energy and commodity prices are higher and even equities are showing noted strength in the early US Wednesday morning trade.

Gold did not seem to be undermined by hints of aggressive austerity cuts from the US Treasury Secretary yesterday and gold also doesn’t seem to be undermined by growing talk that the Fed is preparing for a change in policy. With June gold rising through the $1,500 mark this morning, media coverage will be highlighting the fact.

The gold market saw a downward revision in 2011 gold production estimates from Polymetal a Russian miner. The trade was apparently tossing around rumors of a possible take over of Harmony gold but that talk was discounted by company officials. In the end, residual concerns from the US credit rating story early in the week appears to have sparked a wave of investment flow toward gold and that flow apparently isn’t discouraged by a recovery in US equities…SO FAR.   Traders will be watching the gold market reaction to the scheduled US numbers closely this morning AND if the ability to push higher again off positive US economic readings, will suggest that the gold trade isn’t focused on the prospect of rising rates yet,  but instead focused on inflation.

Equity markets in Asia and Euro were generally stronger during overnight trading, and the US stock market opened today with sizable gains. The Dollar is weaker against most of the major currencies during overnight trading, although posting a gain versus the Yen. Spain was able to auction 3.4 billion Euros worth of longer-term bonds, with good levels of demand from the market. The Swedish central bank raised benchmark interest rates in that nation by 0.25%, the sixth time they have done so in the past 10 months. The Japanese Trade surplus during March was 196.5 billion Yen, lower than expected. German PPI during March was up 6.2% year-on-year, lower than forecasts. Major US economic numbers released this morning include March Existing Home Sales — which were up 3.7%.

Going to the Charts:

Gold is nearing the upper purple channel line which stands near the 1515-1517 area today.  With today being mid week Wednesday,  the potential for gold to make its highs for the week is a consideration.   The 1505 area that we listed as resistance today was tested at 6am EST — and then again at the 7am to 8am EST for almost an hour — where there were four attempts to move above that area that were unsuccessful.  Thus the 1505 area is one to watch.  If that area holds as resisatance the potential for gold to pullback into Friday morning has is a consideration.

Resistance for the remainder of today is the 1505 -1509 area and then the upper purple channel line near 1515-1518.  Support is the 1493-1496 area and then 1489.

In summary — the trend remains up in the metals.  The upper purple channel line is still the target for this week but traders should watch 1505 also.  If gold can’t push above that area, the potential to pullback into Thursday afternoon or into Friday morning could develop before gold makes another upside attempt.  Regardless — the trend remains up and should be favored.

by Bill Downey

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