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Contributors Top Trade Idea For March 12th, 2014 – Gold


Gold: Catch Me If You Can

So far this week, most of the attention has been on China after the world’s second largest economy posted some shocking trade figures over the weekend. This has caused a bit of risk aversion in financial markets with commodities such as copper leading the way lower. Silver prices have also struggled due to concerns about demand for the metal’s other main use as an industrial material.  However, gold’s appeal as a safe haven asset has meanwhile grown.

On top of the Chinese concerns, the on-going situation in Ukraine and anxiety surrounding the Indian general election have also all helped to boost the yellow metal’s appeal. With India’s trade deficit narrowing to just $8.13bn in February, albeit as a result a sharp fall in imports, the pressure is meanwhile growing on India to relax some of the trade restrictions on precious metal.  What’s more, ETF investors are showing greater appetite for gold with SPDR Gold Trust, for example, recording inflows of 7.5 tonnes on Monday alone. At 812.7 tonnes, SPDR Gold’s holdings are at their highest level since December – although still well below the record levels seen in recent years.

Gold’s ability to hold its own above the pivotal $1330 mark in the aftermath of the US nonfarm payrolls data and the Chinese exports number is a particularly bullish outcome. This is yet another confirmation that gold prices may have already bottomed out at the end of last year. What’s more, gold has eroded a second bearish trend line and is currently rising inside a bullish channel.

However, there’s this one flagging sign that has emerged in recent days which is worth keeping an eye on: a triple divergence on the Relative Strength Index (RSI). That is, the RSI has made lower highs while gold prices made higher highs. Normally, this suggests that the bullish momentum may be fading. Having said that, gold has already endured a few bouts of sell-offs in recent days, so a degree of caution is advised in terms of how one should interpret this signal.  Indeed, there is a chance we may see the RSI break its own bearish trend line. If so, that would be another bullish outcome and could precede further price gains for gold.

The yellow metal is currently testing the October high of $1361/2. It needs to close above here before we could potentially see some more gains, with the next upside target being the 78.6% Fibonacci retracement level of the down move from the August high, at $1380. However, given the aforementioned fundamental and technical reasons, the rally could go far beyond $1380. The most obvious upside targets beyond this level appear to be around $1420, which was formerly resistance, and the August peak of $1434. Meanwhile a potential close below $1330 would be a bearish development.



About Fawad Razaqzada

frFawad is’s technical analyst based in London. He entered the FX market in early 2010. Having graduated from Brunel University with a degree in economics, and mentored by some of the industry’s leading experts, he has an excellent understanding of the fundamental drivers of the markets. But it is his unique ability to predict price moves using technical analysis that has made him popular amongst his peers. Fawad is regularly quoted in the leading financial publications such as the Wall Street Journal, Reuters, Market Watch, FT and Associated Press. On a day to day basis, Fawad produces and delivers market commentary and research for, with an emphasis on technical analysis. He achieved his CISI Level 3 Certificate in Investments (Derivatives – Retail) in early 2011.

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