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Traders Eye Top, Bottom Of Recent Ranges As Gold's Key Chart Levels

By Allen Sykora of Kitco News
Monday March 10, 2014 11:45 AM

(Kitco News) - The areas around $1,355 on the upside and $1,326 and $1,319 on the downside are key technical-chart levels for the most-active gold futures on the Comex division of the New York Mercantile Exchange, analysts say.

A break through either could mean accelerated buying and selling for a market that has entered a short-term sideways range lately after starting the year strongly, analysts said.

April gold rose 12.6% from the start of the year into the first trading day of March, boosted by factors that included good Chinese physical demand ahead of the Lunar New Year holidays, safe-haven buying on emerging-market worries, softer U.S. economic data and geopolitical tensions surrounding Ukraine.

But since peaking at $1,355 at the start of last week, gold has held in a range of a little less than $30. While traders continue to keep an eye open for fresh market-moving news, they also watch key chart points for breakout areas that could mean a technical move in either direction.

“It’s just a quiet start to the week,” said Frank Lesh, broker and futures analyst with FuturePath Trading. “People are not quite sure which way we’re going yet, as it tends to be sometimes after one of the biggest reports of the month – the (U.S.) employment data Friday. We have a data-light week here and not much news to drive the market.”

A couple of observers said the market recently ran up to overbought levels based on Stochastic readings, but nevertheless is holding most of those gains. Phil Flynn, senior market strategist with Price Futures Group, said the sideways action after previous gains may bode well for gold.

“The thing that’s encouraging for the bulls right now is that the market, according to Stochastics, was very overbought pretty much all week,” he said. “Even though the market failed to go higher, we didn’t break down either. We‘ve been holding in this sideways range.”

He then cited an old axiom that when a market eventually breaks out of a sideways trend, it more often than not keeps moving in the same direction that it was prior to the consolidation.

Several observers listed chart resistance in the lower $1,350s up to last week’s $1,355 high.

“The $1,355 area – the high from March 3 – is an area where they’ve had a really hard time getting back up to and through,” Flynn said. “Since we had that high, we’ve attempted it (moving back above $1,350) three times and we haven’t been able to break out above that. So that is a big number.”

Should gold break through, traders said, the next chart level to watch is near $1,361. April gold peaked twice right around this back in late October – at $1,361.10 on Oct. 28 and $1,360.60 on Oct. 30.

“If you break out above that area, it would signal probably a move up to $1,420 to $1,440,” Flynn said. “It would be a very strong bullish breakout.”

Darin Newsom, DTN senior analyst, pointed out that a 67% Dow Theory retracement level lies around $1,350.20. Beyond that, he listed resistance up around $1,423.50. This is a 38.2% Fibonacci retracement level of the decline in April gold from the October 2012 high of $1,813.70 to the New Year’s Eve low of $1,182.30.

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Support Seen At Lows From Last Two Fridays

Traders put nearby chart support from the lows of the last two Fridays.

Lesh listed the $1,326 region, after the market put in last week’s low at $1,326.60 on Friday after a stronger-than-forecast U.S. jobs report, but has not fallen any further.

“Today, we got down to around $1,327, so we’ve held last week’s lows so far,” Lesh said. Specifically the overnight low was $1,327.50.

Flynn, meanwhile, put his key nearby chart level at the low from the previous Friday, Feb. 28, when gold held at $1,319.30.  “We have not been below $1,320 since Feb. 28, and that was only barely,” he said.

Should this give way, he added, more support may lie around $1,315.

Newsom put his major support back around $1,289 to $1,290, which would be a 38.2% Fibonacci retracement of the rally from the New Year Eve’s low to last week’s high. A 50% retracement would mean further support around $1,268.70, he added.

By Allen Sykora of Kitco News; asykora@kitco.com



Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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