(Kitco News) - Mon July 15—While gold prices firmed overnight in Asia and European action, pre-New York trading has seen August Comex gold futures erase gains and push to slightly weaker levels, on the heels of a stronger U.S. dollar index.
August gold futures have posted a solid near term rally in recent days, climbing from the June 28 low at $1,179.40 to $1,297.20 on Thursday. The minor uptrend pattern is bullish.
But, for now, the bulls are being turned away by a stiff psychological resistance ceiling at $1,300—and that will remain the key near term zone for traders to monitor.
So-called "round-numbers" like $1,300 often act as both magnets for price action and also resistance. Also, the contract marked out minor congestive resistance on June 21 and 24, with daily highs right around $1,300.
Gold traders take note—this is the make-or-break level for gold over the next few days.
Additionally, gold may be forming another "triangle" or consolidation pattern on the daily chart. Recently, gold has a propensity for triangles. A large one formed during the April-June period, which presaged the latest down-leg. Triangles are generally continuation patterns (meaning the previous trend will continue upon a breakout), but sometimes they can act as tops or bottoms as well.
In this case, traders should monitor triangle trendline resistance and triangle trendline support, seen on Figure 1 below. An upside breakout would be bullish, while a downside breakout would mean a continuation of the primary bear trend. The time period on this triangle is fairly short as the apex is approaching.
Very short-term, the August gold contract has edged just above its declining 20-day moving average, which has largely limited upside for months. That level comes in at $1,272.30 on Monday. If August gold were able to achieve several consecutive settlements above its 20-day moving average, then that would be an important bullish signal near term.
Bottom line? The key triggers for the bulls include sustained gains above $1,300 and sustained gains above the 20-day moving average. If that occurs early this week—gold bulls have the green light for another near term rally leg.
Finally, daily momentum, as measured by the nine-day relative strength index (customize setting to nine-period for less whipsaw), may be petering out. While it is an unconventional use of trendlines, sophisticated technical traders sometimes draw trendlines on momentum. The 53%-55% level has acted as a ceiling for momentum in recent months and has presages market declines. If that level holds firm again another dip in gold prices is likely. On the flip side, if the nine-day RSI can bust through the 55%-60% level that would prove to be a bullish momentum breakout as well.
On a different note, open interest data reveals that the "roll" from the August Comex gold futures contract to the December contract is on-going. Open interest simply represents the amount of total "open" or outstanding contracts in any given month. As of July 11, CME Group said open interest for August gold stood at 174,730, which was a decline of 11,773 contracts. The largest increase in open interest went to the December gold contract, which currently has 133,114 open interest and saw a rise of 10,614. The Comex gold futures contract has a physical settlement.
Traders who are currently holding an August gold futures position and don't want to liquidate via physical settlement will need to consider a "rollover" plan over the next several days to weeks if the goal is to stay invested.
As always, watch the charts and trade "what you see" not what you think. The gold market will show you where it wants to go near term and these simple technical tools can aid in confirmation.
Kira Brecht is managing editor at TraderPlanet.
By Kira Brecht, contributing to Kitco News.