Monday September 02, 2013 10:21
While it was a quiet week for gold, it was a good week. The bulls are consolidating the market's recent gains and dips were short-lived, shallow and used as buying opportunities. Since the late June low to the mid August high, Comex Dec gold has rallied a whopping 17%. What a difference a few weeks can make.
This week's consolidation is a tight range trade as the market pauses to digest the recent gains. That is a healthy sign in an uptrend and offers gold traders clear resistance and support points. Very short-term technical chart support lies at $1,351.60 and eager buyers have emerged on modest pullback. Resistance lies at $1,384.10—and that is the ceiling the bulls need to rally through to unleash a fresh upswing in market action.
Fundamentally, there are a bevy of potential bullish factors on the horizon, which could provide underlying support to a new up wave in gold ahead.
Most immediately, South African labor negotiations will take front and center with the potential for supply disruptions seen. "The potential for an escalation of supply side threats in gold and platinum might be in the cards directly ahead, as the 30 day mediation window (which started on July 23rd) is scheduled to end this week," wrote analysts at The Hightower Report, in a special research note to clients this week.
"Our opinion is that some initial flare of violence will be seen before either party manages to shift into a compromising posture," according to The Hightower Report.
In addition to South African mining disputes, the U.S. Federal Reserve remains a key focus—with the timing of the start of its "tapering" process, or the reduction of its monthly asset purchase program still undecided. If the Fed does not initiate tapering at its September FOMC meeting, that will provide support to gold.
This fall could bring the nomination of the new Federal Reserve Chairman. Current head Ben Bernanke is expected to step down in January 2014, which will leave the central bank with a new leader during a somewhat perilous time. Anecdotal evidence suggests that Bernanke has been particularly adept at developing "consensus" for Fed policy decisions. Going forward, dissents and conflicting opinions could be unsettling for financial markets if that were to unfold.
Bullish seasonals remain an underlying supportive factor as a look at a monthly continuation chart for gold futures reveals a generally positive trend from the August time period in most years.
Finally, of course, the U.S. fiscal negotiations are likely to rear their ugly head this fall with another debt ceiling debate expected. There's plenty of bullish fodder for a continuing rally in gold in the weeks ahead. The question is which spark will light the dry tinder currently seen?
Comex December gold futures are in the midst of a well-defined minor technical uptrend. The books say an uptrend is defined by a series of higher daily high and higher daily lows. Since the June 28 low at $1,182.60 we have seen that unfold on the chart.
A rising bull trendline can be drawn on the daily chart off the late June low, which shows the gold market in an uptrend. Strong support for gold lies at $1,315 and then $1,271.80, the August 7 swing low. A close under that swing low would be needed to destroy the current uptrend pattern and to put the bears back in control of the medium term trend.
A confirmed bottoming pattern on the daily chart targets a retest of the early May high at $1,490.50 in the weeks ahead and that remains a key bullish objective, as long as the uptrend pattern remains intact.
By Kira Brecht, Kitco.com, follow her on Twitter @KiraBrecht