(Kitco News) - On a short term basis, the near term technical picture has improved for gold.
The market has busted higher through a declining daily bear trendline, a new minor daily uptrend has started and the contract is trading above its 20-day and 40-day moving averages. See Figure 1 below.
However, on a larger multi-month basis, gold futures remain trapped—roughly mid-range—in an intermediate term neutral pattern. Major resistance lies at the $1,490/1,500 zone, while major support is seen at the $1,182 area.
The gold market is heading into Monday trade with a consolidative tone, after two weeks of solid gains, seen on the weekly chart. The narrow gold action is not a surprise as the U.S. dollar index has fallen to a strong support zone from the February 2013 low, and bounced slightly. This is a key level for the greenback and traders are waiting for fresh fundamental news on the economy, before a serious test of this floor would likely be seen.
Very short-term, action in the U.S. dollar index will likely provide catalysts for directional plays in gold. The gold market is set up bullishly near term, but a fresh downswing in the U.S. dollar index—if that February low at 78.91 were to give way this week —would offer gold bulls fresh momentum on the upside.
On the upside, for Comex December gold futures, Friday's high at $1,356.40 offers first resistance. If solid gains are achieved through that ceiling, the bulls will target $1,375.40, the Sept. 19 swing high and then more significant resistance at $1,434, the late August swing high.
On the downside, initial support for Dec gold is seen at $1,330.20, the Oct. 24 daily low, which roughly corresponds to the 40-day moving average at $1,329.80. If that zone were to give way, the gold contract would be vulnerable to additional slippage toward $1,309.50.
The near term bias for gold is bullish. But, the market is vulnerable to a period of consolidation or possibly even minor correction. Watch the dollar. The greenback is at a critical level. If economic data surprises on the bearish side this week, the U.S. dollar will likely crack that key support floor, which will open the fresh upside for gold.
Read the latest news in gold and precious metals markets at Kitco News.
Kira Brecht is managing editor at TraderPlanet.
By Kira Brecht, contributing to Kitco News.
