Gold Scores a Touchdown AND the Goal is Good!

Gold's offensive team smashes through the dreaded $1,677 resistance line and then rushes halfway towards yet another major resistance line.

Today we're going to be giving you a double-dose of valuable information by starting off with some technicals and then following up with some fundamental news interpretations to give our readers a fuller understanding of trading mechanics.

Again, if you've read Gerald's previous blogs then you would get why we liken price movement to football - for you latecomers, it makes charts much more exciting too. Gold has made quite the comeback over the past few weeks. More recently, it had a little trouble getting past the $1,677 resistance line, which as Gerald stated in his previous article, would be the equivalent of a touchdown after gold had already gotten two "1st downs" by crossing upwards past the $1,619 resistance line (first 1st down) AND then through the 200 day moving average (second 1st down) on the XAU/USD pair (Gold-to-USD).

Not only has gold managed to "score" by passing the $1,677 "end zone," it has also made it halfway towards the next major resistance line located around $1,746:

So we think the follow-up "one point field goal" was definitely good, BUT what follows now is possession by the other team (we can call them the 'Bears' - NOT to be mistaken with Chicago...) and how well the team that WE are rooting for (we can call them the 'Bulls' - ALSO... not to be mistaken with Chicago...) can play "defense," and by that we mean how well gold price can maintain its upward momentum.

To give us a little more insight, and to gradually upload more technical teachings to our readers before the charts turn into a Christmas tree filled with every color known to man (don't worry that shouldn't happen), Gerald has added in the 50 day moving average (black) line. Just like any other major "crossing" momentum technique, historically this shorter period moving average tends to cross the 200 day moving average to the upside when prices trend up and vice versa when prices trend down. ALSO, the actual point or date at which the crossing occurs can hint at a confirmation of a trend's end and ensuing reversal OR such a crossing can further confirm the continuation of a prior trend. Below is a sample chart exampling a shorter period (aka faster line) crossing a longer period (aka slower line) to the downside, and further confirming a downward trend with even greater strength or momentum after the actual crossing:

Tracking with us so far? GOOD job! Okay now bear with us just a little bit longer because we're almost done explaining this famous crossing technique. ANOTHER form of "crossing" that isn't really a cross, but has the same effect as one, is when the quicker line is about to cross the slower line, but DOESN'T and instead sort of bounces away from it. Technical trading schools will usually teach that a bounce to the upside, for example, has almost just as much significance as a "crossing" to the upside. For example, take a look at another sample chart below:

The reason why we bring up this 'bouncing' phenomenon is that, currently, gold price can go either way. Instead of asking you to scroll up, we'll just put another copy of the first chart below:

Interestingly, you'll notice that the faster black 50 day moving average line is about to cross the slower 200 day moving average line to possibly signal the end of this bullish run. BUT ALSO, it is just as likely that this 50 day moving average may bounce up from the 200 and reconfirm another bullish run - GO BULLS! In other words, the moving averages are 'deadlocked' as to what direction gold will move next.

Taking a quick look at the oscillators, you'll notice that both the MACD line (blue) and the signal line (red) are now in positive territory, BUT this MACD line has ALSO not crossed the signal line to the downside yet, indicating more room for the bulls. The RSI on the other hand, is screaming that conditions are overbought by hovering near the 70 'oversold' level. So it would seem that the oscillators are also standing toe-to-toe in disagreement.

In summary on the technicals, we would say that the support and resistance levels, moving average lines and oscillators are split right down the middle indicating a 50% vote for 'up' against a 50% vote for 'down' for a grand total of 0% voting up and 0% voting against. Tie-breaker anyone?

It looks like both teams have great players and their passion is unstoppable. This is going to be a battle between the two head coaches' wits, wisdom and willpower - and by that we mean that we look to the FUNDAMENTALS (news)...

Most of gold's rise above $1,700 an ounce (for the first time since last December) can be attributed to the Federal Open Market Committee (FOMC) suggesting that it intends to keep interest rates at “exceptionally low levels” until LATE 2014, compared to mid-2013 as mentioned previously. And while this talk of low interest rates tends to bode well for gold when taking into account the previously blogged INVERSE correlation between interest rates and gold prices, what also helped the yellow metal's climb was the classic contest between 'general sentiment' and 'actual statements.' In this respect, and as Thomas Simons, a government-debt economist at Jefferies Group Inc. mentioned: the Fed “one-upped” the market expectations that the first rate hike would take place in early 2014. Such a large discrepancy between the general sentiment's expectations and the Fed's actual stated intentions, further served as a bullish push.

While this may seem good for gold, there is no surefire conclusion as to just how long an upward push will be sustained by that FOMC announcement in the coming days or weeks. Any other major news from the U.S. or abroad can cause a major change at this critical juncture. In other words, the coach for the 'Bulls' outwitted the coach for the 'Bears' on Wednesday, but the game is still going on and we look forward to this Super Bowl's end at the $1,800 stadium...

Get your jerseys, reserve your cable spots and crack open a cold one because this is going to be one tough and exciting match.

- Gerald & Mitch

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