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Gold Stumbles In Corrective Pullback

By Kira Brecht of Kitco News
Monday January 26, 2015 2:39 PM

(Kitco News) - After surging above the $1,300 per ounce level last week for the first time since August, April Comex gold futures have stumbled lower amid a modest corrective pullback on Monday.

The near and medium term trends are bullish for April gold futures after the strong rally seen in recent weeks. But, gold momentum hit overbought momentum readings on the push through the $1,300 level last week and the bulls are simply tired and due for a rest.

The 14-day relative strength index (RSI), shown at the bottom of Figure 1 below, climbed as high as 76% last week, and any reading over the 70% zone is considered to be "overbought." Now, the momentum indicator has turned down from overbought levels, which is a short-term bearish signal and leaves the yellow metal vulnerable to a period of consolidation or downside correction.

Corrections are actually healthy for markets. It allows any excesses to be wrung out and readies the market for the next trend phase.

How far could gold retreat near term in a correction phase?

A Fibonacci retracement is drawn on the most recent gold market advance that started at the Jan. 2 low, marked at Point A, on Figure 1 below. The 38.2% retracement of that rally move into the Jan. 21 high comes in at $1,255.10. That area nearly coincides with an important swing high that is now acting as support for the gold market at $1,255.20, the Oct. 21 swing high. That area is marked as Point B on Figure 1 below.

The $1,255 zone is support for gold and the yellow metal could slide back toward that zone in a correction without harming the near and medium term uptrends.

If the $1,255 area were to give way, next support lies at the 50% retracement at $1,238.60, which roughly coincides with the Dec. 9 high (which is acting as support) at $1,239.40.

On the upside, the $1,308.80 zone hit last week is now initial resistance for gold. A rally back above that ceiling would reawaken gold bulls, with targets at $1,3210.10 and then $1,347.20.

But, gold may need some time to "back and fill" before the bulls launch a strong attack on the $1,300 zone again.

By Kira Brecht, Kitco.com
Follow her on Twitter @KiraBrecht



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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