Gold Continues to Fluctuate Within a Converging Wedge Pattern

Gold has highlighted the relevance of the wedge pattern we spotted last week by bouncing off of our 2nd tier uptrend line once again. Meanwhile, our downtrend line is gradually converging with our 2nd tire uptrend line, implying gold may wake from its consolidative slumber soon. Fortunately for bulls, gold continues to set higher lows while hinting at a topside preference by continually resisting a noteworthy retreat below the highly psychological $1050/oz level. All eyes remain on the Dollar, particularly the Euro and Aussie crosses. Gold has seemed to follow the EUR/USD and AUD/USD more closely than the GBP/USD and USD/JPY due to the erratic behaviors of the BoE and BoJ, respectively. Therefore, investors should eye the EUR/USD’s ability to move higher and create some space between present price and the currency pair’s psychological 1.50 level. We notice a similar consolidative pattern in the AUD/USD, so investors should watch to see if the currency pair can break above its own October highs. A breakout in either major cross could result in a similar movement in gold.

Meanwhile, the S&P futures are in a topside battle of their own. The S&P has had a lot of trouble breaking through its psychological 1100 level. A large movement above 1100 in the S&P would likely come with a broad-based depreciation of the Dollar, thereby pushing gold higher due to correlative forces. As a result, investors should pay attention to the S&P’s reaction to upcoming Q3 earnings reports and econ data releases, most notably tomorrow’s CB and HPI data along with Wednesday’s Advance GDP and Durable Goods numbers. That being said, the presence of key econ and earnings releases among key psychological levels across the board presents the opportunity for high volatility should results steam in either highly positive or negative.

In terms of technicals, the topside barriers remain our makeshift downtrend line along with previous 2009 highs and the psychological $1075/oz and $1100/oz levels. As for the downside, the psychological $1050/oz level continues to serve as an important technical cushion along with our 1st and 2nd tier uptrend lines.

Present Price: $1058.50/oz

Resistances: $1058.75/oz, $1061.40/oz, $1065.15/oz, $1068.06/oz, $1070.66/oz

Supports: $1055.46/oz, $1051.91/oz, $1048.62/oz, $1045.32/oz, $1042.96/oz

Psychological: $1050/oz, $1075/oz, $1100/oz