Friday, January 15, 2010

Gold Drifts Lower as Dollar Rallies

Gold is drifting lower today as the Dollar rallies across the board amid risk-aversion. The Dollar’s rally began during the Asia trading session after the EU released more bleak statements in regards to the state of Greece’s economy. Furthermore, the AUD/USD dropped as reality sunk in that China is tightening liquidity, cooling down the globe’s hottest economy. Additional hawkish monetary measures from China could decreases demand for Australia’s commodities and this realization dragged the Aussie lower. Meanwhile, the U.S. released sluggish Industrial Production and UoM Consumer Sentiment data. Investors reacted by sending the Cable and AUD/USD lower, a negative development for gold considering their positive correlation. However, gold is holding up relatively well despite a retreat from the risk trade today. Gold is trading above intraday lows and has bounced off our 4th tier uptrend line. However, gold could be dragged lower should the Dollar continue to rally and the S&P futures extend their intraday losses. That being said, gold still has a solid support system in place.

Technically speaking, gold has multiple uptrend lines serving as technical cushions along with 1/13, 1/8, 1/5 lows. We recognize that gold has built a neckline along our 4th tier uptrend line. Hence, a movement below our 4th tier could result in a large step lower. Meanwhile, gold’s psychological $1150/oz area should continue to play a role for the near-term. As for the topside, gold faces technical barriers in the form of 1/7 and 11/18, 11/23, and 11/27 highs along with the psychological $1175/oz level.

Present Price: $1131.75/oz

Resistances: $1136.38, $1138.89/oz, $1141.39/oz, $1145.47/oz, $1148.91/oz, $1153.61/oz

Supports: $1130.43/oz, $1127.30/oz, $1124.48/oz, $1120.41/oz, $1117.27/oz, $1114.45/oz

Psychological: $1150/oz, $1100/oz, January and December highs, January lows

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