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Technical Trading: Gold Bulls Target Test Of $1,239 Level, Greece Jitters Support
By Kira Brecht of Kitco NewsMonday January 12, 2015 9:35 AM
(Kitco News) - Gold bugs have started the year off with a bang.
From the close of 2014 to Monday's intraday high, Comex February gold futures have climbed nearly 4%. Not a bad start to the year.
Jitters about political instability in Greece ahead of national elections there later this month continue to underpin gold amid a safe-haven and flight-to-quality bid. Weekend polls revealed that the leftist opposition party —Syriza —continues to lead in the polls. Concerns that a shift in government to the left in Greece could open the door to a potential debt default are running high. Greek elections will be held Jan. 25.
Meanwhile, the daily chart shows a minor bullish uptrend pattern in place off the Nov. 7 low. Higher price highs and higher price lows have developed in recent months. The near and medium term moving average picture is bullish for February gold, as the contract trades above its 20-day, 40-day and 100-day moving averages. Generally, that is a positive signal for the trend following crowd.
On the upside, gold bulls are eyeing a retest of the Dec. 9 high at $1,239 per ounce. That represents the most recent swing high for gold and is an important technical ceiling. Gains would be needed above $1,239 to open the door to a fresh buying wave. If gains are achieved above $1,239, the next bullish target comes in at $1,256.20, the Oct. 21 daily high. See Figure 1 below.
Fundamentally, physical demand is expected to pick up in China in the weeks ahead ahead of the Lunar New Year celebration there. "Demand in China has kicked off 2015 on a healthy note with volume traded on the Shanghai Gold Exchange firming even as local prices have ticked higher," according to a Barclays Research note to clients.
Additionally, speculative flows are favoring the bullish camp. "The latest CFTC data shows tactical investors increased their exposure by 6.3k lots in the first week of January, driven mostly by the establishment of fresh longs (4.8k lots) as well as short covering activity (1.5k lots). Speculative positioning is now at its highest since late August while gross longs are at November highs. Views have become much more divided in gold but in recent weeks short positions have been gradually scaled back," according to Barclays analysts.
The bottom line? The short-term gold chart pattern is bullish. Resistance and a bullish target lies at $1,239 per ounce. With Greek elections looming large, the political uncertainty and what it could mean for the euro-zone will likely keep a bid in the gold market near term.
On the downside, the 20-day and 40-day moving averages are now acting as support on the downside. As long as those moving averages holds firm, the bullish bias will remain intact near term.
By Kira Brecht, Kitco.com
Follow her on Twitter @KiraBrecht
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