Monday, November 9, 2009

Gold Breaks Past $1100/oz

Gold has finally broken past its psychological $1100/oz level after a week-long debate. The precious metal is finding strength from a broad-based weakness in the Dollar as the Aussie, Euro, and Pound all log solid gains against the Greenback. Furthermore, India’s large purchase of IMF bullion is probably increasing speculation that global central banks are beginning to diversify their reserves and decrease their reliance on the Dollar. Gold is a direct beneficiary of such a trend since it is a notorious safe haven asset. Meanwhile, we also notice sizable topside movements in both crude and the S&P futures, indicating today’s activity in Gold’s correlations are all creating an environment supportive of the precious metal’s psychological breakout.

Gold’s near-term reaction should remain reliant on the Dollar’s reaction to upcoming econ data. In focus will be tomorrow’s EU ZEW Economic Sentiment number followed by a wave of Chinese data late Tuesday EST. If tomorrow’s econ releases should impress and the Dollar reacts negatively, gold would likely be a beneficiary, and vice versa. Technically speaking, gold’s movement beyond $1100/oz is another key uptrend statement from the precious metal. Although there’s the possibility gold may retrace towards the upper end of the $1100/oz psychological zone, the precious metal’s technicals are still supportive of its medium-term uptrend. It’s difficult to place too many topside resistances until gold cools down, while the precious metal has multiple uptrend lines along with 11/6 lows serving as technical cushions.

Meanwhile, investors should keep an eye on the EUR/USD’s interaction with its highly psychological 1.50 level along with our 2nd and 3rd tier downtrend lines. Gold has been strongly correlated with the EUR/USD lately, meaning a topside breakout in the Euro could push gold highs, adding more weight to tomorrow’s ZEW data.

Present Price: $1106.80/oz

Resistances: $1108.20/oz, $1110.59/oz

Supports: $1103.64/oz, $1100.97/oz, $1098.11/oz, $1094.78/oz, $1090.71/oz, $1088.55/oz

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


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