Gold – Drops Sharply Back to Near Key $1240 Level

Gold for Monday, February 9, 2015

To close out last week, gold moved sharply lower back to the key $1240 level and then to a three week low just below $1230.  With the exception of the last couple of weeks, gold has enjoyed a very solid few weeks which has seen it surge to a five month high near $1308, before reversing and moving back under $1240 over the last couple of weeks.  It presently finds itself trading in a narrow range around $1235.  A few weeks ago gold eased back a little and steadied below the $1280 level after surging to that area and a four month high, before its recent strong surge higher. Over the last month gold has been on the move as it has been able to rally strongly from around $1170 back through the key $1200 level and to a 12 week high just above the $1240 level before its further surge higher a couple of weeks ago.  As expected the $1240 level remains key as it has provided plenty of resistance over the last few months and is now playing a role as gold has retreated back to it.

At the beginning of December gold eased lower away from the resistance level at $1240 yet again back down to below $1200. During the second half of November gold made repeated runs at the resistance level at $1200 failing every time, before finally breaking through strongly. Throughout the first half of November Gold enjoyed a strong resurgence back to the key $1200 level where it has met stiff resistance up until recently. Throughout the second half of October gold fell very strongly and resumed the medium term down trend falling from above $1250 back down through the key $1240 level, down below $1200 to a multi year low near $1130. It spent a few days consolidating around $1160 after the strong fall which has allowed it to rally higher in the last couple of weeks.

Earlier in October Gold ran into the previous key level at $1240, however it also managed to surge higher to a five week high at $1255. In late August Gold enjoyed a resurgence as it moved strongly higher off the support level at $1275, however it then ran into resistance at $1290. In the week prior, Gold had been falling lower back towards the medium term support level at $1290 however to finish out last week it fell sharply down to the previous key level at $1275.

Gold fell more than 2 percent on Friday as global stock markets and the dollar rose on stronger-than-expected U.S. jobs data, raising expectations that the Federal Reserve will increase interest rates by midyear.  U.S. nonfarm payrolls increased by 257,000 last month, topping expectations for 234,000, with the unemployment rate ticking up to 5.7 percent due to more people entering the labor force.  “The U.S. employment report was good and there has been quite a sharp adjustment in interest rates expectations, with 10-year Treasury yields up 10 basis points,” ABN Amro analyst Georgette Boele said.  “I expect lower precious metals prices for the next six months up to the moment the U.S. really starts hiking interest rates.”  Spot gold dropped to a three-week low of $1,228.25 an ounce earlier and was down 2.4 percent at $1,234.70 an ounce by 2:02 p.m. EST (1902 GMT), its biggest fall since Dec. 15. It has lost 3.8 percent so far this week, which would be its largest fall since the week ended Oct. 31.

(Daily chart / 4 hourly chart below)

Gold February 8 at 22:45 GMT   1234.5   H: 1268.9   L: 1228.4

Gold Technical

S3

S2

S1

R1

R2

R3

1240

1200

1170

1300

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During the early hours of the Asian trading session on Monday, Gold is trading in a very narrow range right around $1235 after dropping sharply to close out last week.  Current range: trading right around $1235.

Further levels in both directions:

• Below: 1240, 1200 and 1170.

• Above: 1300.

OANDA’s Open Position Ratios

(Shows the ratio of long vs. short positions held for Gold among all OANDA clients. The left percentage (blue) shows long positions; the right percentage (orange) shows short positions.)

The long position ratio for Gold has moved back towards 70% as it has dropped sharply back down through the key 1240 level.  The trader sentiment is in favour of long positions.

Economic Releases

23:50 (Sun) JP M2 Money Supply (Jan)

23:50 (Sun) JP METI Tertiary activity index (Dec)

00:30 AU ANZ Job Ads (Jan)

05:00 JP Consumer Confidence (Jan)

05:00 JP Economy Watchers Survey (Jan)

09:30 EU Sentix Indicator (Feb)

13:15 CA Housing starts (Jan)

NZ REINZ House Price Index (9th-13th) (Jan)

WLD OPEC release monthly oil market report

* All release times are GMT

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

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