(Kitco News) - Although gold prices have struggled to make new highs, strong technical support for spot gold at $1,350 to $1,355 an ounce helps to create a floor, at least for the short-term, say analysts,.
Ole Hansen, head of commodity strategy at Saxo Bank, said three technical factors make $1,350 an important support level, which is why it is drawing so much attention.
On Tuesday, spot gold prices hit a session low of $1,358.20, and then just ahead of the North American open Wednesday, more selling pressure pushed gold to the session low of $1,357.80. As of 1:31 p.m. EDT, spot gold was at $1,364.10, up 80 cents on the day, or 0.06%.
Hansen said $1,350 is the first major resistance level and was formed in July after prices rallied from the June low of $1,180.60. When price rallied through there in August, it became a support level. It is also close to the 50% retracement from August’s low of $1,272.90 and its high of $1,433.50; finally $1,355 is also the lower support area of the rally’s current uptrend.
However, despite these “three lines of defense,” Hansen said the uptrend’s momentum is starting to disappear and it could be only a matter of time before the support level breaks. Higher bond yields and the prospect of the Federal Reserve tapering its $85 billion bond-purchasing program next week is taking away the momentum the bulls need to drive the price higher in the near-term,” he added.
“The bears are in control, but the bulls are putting up a good fight,” he said. “I think you can say we are in an uptrend channel with negative momentum.”
Axel Rudolph, senior technical analyst at Commerzbank, said looking at the technical picture, he is expecting the price to break below $1,350 in the next few days.
He added this level has to break if prices are going to move lower. Rudolph said ultimately he is expecting prices to break below June’s low by the end of the year or the start of 2014.
However, a push towards $1,416 would negate his forecast for lower prices, he said.
Bart Melek, head of commodity strategy at TD Securities, said with the Federal Reserve monetary policy meeting only a week away, he is expecting gold prices to continue to bounce around this area and hold support at $1,350.
Melek added he is seeing signs of weakening momentum for higher prices including various new downgrades from banks.
Whether gold prices hold support or not will depend on the Fed’s tapering decision and the statement that accompanies it, he said. Any hawkish tone or a bigger cut than expected, which he doubts will happen, could send gold below $1,350.
However Melek added that he isn’t convinced that prices will rally much past $1,400 if the Fed tapers less than $10 billion in monthly asset purchases.
“[The Fed] is committing to tapering and they will have it data-dependent. If they said they aren’t doing anything that will be a different story,” he said.
Hansen agreed that next week prices could move towards $1,400 as the market has been fairly aggressive in its tapering expectations. He added with yields near 3%, the bond market has run ahead of the Fed, so next week yields could come down, which would be another bullish factor for gold.
Hanson added that a drop below $1,350 won’t rule out a return to higher prices. He said a drop might attract some new buyers into the marketplace.
“For gold to move higher it might be healthy to test the $1,350 area. I think it would be healthy to test those stops,” he said.
By Neils Christensen of Kitco News firstname.lastname@example.org