Wednesday, January 13, 2010

Gold Sinks Below $1150/oz Despite Dollar Weakness

Gold incurred sizable losses yesterday despite aggressive topside movements in both the Cable and EUR/USD. Gold’s positive correlation is a bit puzzling and could be signaling further Dollar strength to come. Meanwhile, all eyes are turning to tomorrow’s ECB meeting and the release of U.S. Retail Sales. These two events could yield volatility in the FX markets and gold would likely tag along for the ride. That being said, investors may want to disregard yesterday’s positive correlation with the Dollar. We expect gold to maintain a negative correlation with the Dollar until further notice. Hence, investors should monitor activity in the EUR/USD and Cable considering both currency pairs just broke out of their respective January highs.

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: $1131.30/oz

Resistances: $1134.19, $1138.89/oz, $1141.39/oz, $1147.34/oz, $1153.61/oz, $1157.68/oz

Supports: $1130.43/oz, $1127.30/oz, $1124.48/oz, $1119.47/oz, $1114.45/oz, $1111.63/oz

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

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