The precious yellow metal has been under pressure the last seven weeks, giving up half of its 2014 gains. Today’s surge could really be just a temporary recovery from this prolonged selloff, also known as a dead-cat-bounce. The longer term bearish move is very much still in place.
Demand from China is expected to help support prices and while today’s rally appear the strongest rally we’ve seen in a few weeks, buyers may still be hesitant even if gold recaptures the $1,300 handle.
My February 28th post on gold highlighted the potential wave count that targeted a move towards the major downward sloping resistance level. So far the technicals have been very good for gold. The downward trend may resume but the freefall that we got use to in 2013 is not likely to repeat itself and this year may have more sluggish moves. For the remainder of the year, the range we may see is $1,320 and $1100.
Postponed Production Projects
The supply side with gold may help provide some with bullish arguments. Lower prices have postponed projects in exploration and eventually will yield production declines and mining closures which will ultimately provide a boost for the metal. I believe that the demand side however will override any major bullish bounces.
Where is the Strong Demand from China
In my prior post, I also highlighted before that The Census and Statistics Department of the Hong Kong government reported that China imported 83.6 tons of gold and that the pace was expected to continue. So far we have not heard of any serious buying yet from China.
The Technical Assessment
Gold (daily chart) has reached my upside target of the $1,380 area target. Price is currently trading in between both the 200-day and 100-day Simple Moving Averages. If the bullish bounce rallies above the psychological $1,300 level, we will look for a test of the 50-day SMA to be followed by selling interest and eventually target are return back down towards the $1,280 area
The trade: Sell Gold at $1,307 with a stop loss at $1,317 and a take profit at $1,280. The Risk/Reward Ratio is just under 1 : 3
Edward J. Moya
WorldWideMarkets Online Trading