Technical Snapshot: Gold, silver at important price points

Gary Wagner & Robert DiLallo
the gold forecast.com

Gold traded as high as USD 1797 in Thursday's COMEX trading, planted firmly on the European Central Bank's pledge to buy various governments’ national bonds. At close in New York on Thursday gold was still trading at USD 1791.30.

The ECB and the Bank of England also elected to maintain interest rates at a low 0.5% for the near future, a surprise to no one. These developments are important for anyone looking to retain value as currencies tumble in all the major economies.

The rise in gold was also underpinned by three developments in the United States. Jobless claims rose in the US, which guarantees vigorous monetary stimulus from the Fed. The upper number for the monthly stimulus was set at USD 40 billion and we will surely see that if not more. This is to come in the form of buying mortgage-backed securities, a fairly toxic asset. The US is intent on reviving its housing market.

As if on cue, on Thursday the Fed issued the minutes of the last Federal Open Market Committee (FOMC) and the public was given deeper insight into its thinking. In a word: jobs. Inflation was not ignored but was given a momentary brush-off.

Markets were also digesting President Obama's rather lackluster performance in Wednesday night's debates, just to add an extra dash of uncertainty and prod gold buyers.

A wild card in the whole process that could very well see gold push past 1800 soon is the boost in buying by sovereign governments’ central banks. Just about anyone with spare currency is snapping up gold.

Of course, as people in India; China; Vietnam and the rest of southeast Asia know, the soaring prices put a damper on physical purchases for jewelry, bars and other traditional holds.

But when measured against Russia's purchase of 18 metric tons, and South Korea's 16 tons, the absence of physical buyers seems not to be making a dent in the price of bullion.

Friday will prove to be problematic for traders looking for gold to rise. The US payrolls report is due out and many will be staying on the sideline, while those who do jump in will be looking to snatch some profits off the table and sleep easy over the weekend.

Technical Snapshot:

On a technical basis, today's upside moves in both gold and silver are extremely significant. Both gold and silver prices can be characterized by their dramatic ascent to higher prices followed by a period of consolidation.

However, on this last move as gold began to trade to seven-month highs we saw our first real level of resistance. The same can be said for silver at USD 35 per ounce. It is for this reason that today's price move is so significant. We are witnessing the necessary price action of a consolidating market as it forms a base and support at a former resistance level. Although a little too early to ring the bell, today's price action is absolutely essential if gold and silver prices short-term are going to continue to trade higher.

thegoldforecast.com