NEW YORK: Gold’s break above $1,400 an ounce on Monday for the first time since June 7, and a bullish “cup and handle” chart pattern, suggest more gains are in store for the precious metal which may have bottomed out two months ago, technical analysts said.
“There is a very high likelihood that we saw the near-term low on June 28, the last day of second quarter, as many big investors capitulated,” said Adam Sarhan, chief executive of Sarhan Capital, referring to a final wave of selling at the market’s bottom before prices rose again.
After touching $1,406 per ounce briefly on Monday morning, bullion has recovered over $200 since the end of June when prices hit three-year lows of $1,180 amid talk that funds were being forced to sell to meet client redemptions.
Hedge fund managers, including gold bull John Paulson, sold stakes in SPDR Gold Trust, the world’s biggest gold-backed exchange-traded fund, in the second quarter, betting that the Federal Reserve would end its stimulus program as the world’s No. 1 economy improved.
Since then, gold prices have staged a sharp recovery as lackluster US economic indicators including new home sales on Friday and durable goods data on Monday added to confusion over when the Fed may curb its bond-buying stimulus.
On Aug. 9, the yellow metal’s breakout of its “handle” coincided with its breach of its 50-day moving average, indicating gold had bottomed and hedge-fund managers could aggressively buy back their gold positions, Sarhan said.
With gold now trading above its 50-day moving average and below its 200-day moving average, the 50-day is heading for a break above the 200-day, a significant bullish formation known as “golden cross” which would suggest the metal’s momentum is growing.
However, analysts with a less-certain outlook say bullion needs to clear major resistance levels before the market can assume a better technical footing for the long term.
Bill O’Neill, a partner in commodities investment firm LOGIC Advisors, said $1,425 is a more important price level than $1,400.
Rick Bensignor, head of trading strategies at Wells Fargo Securities, is watching for it to break the 200-week moving average around $1,471 an ounce.
“I can’t say it’s out of the woods yet. Technically it’s too early to necessarily say that this is anything more than a short-term bounce in a somewhat negative market,” Bensignor said.