The boost to the gold price last week saw the yellow metal test a key level of resistance at $1,335 - the top of the daily cloud. This is significant, as anything above the cloud is considered an uptrend. Why the failure at this key level? The dollar is getting its groove back today, which is weighing on the commodity sphere.
After a sharp sell-off the dollar is in recovery mode this week as we await some key economic data from the US. This is helping to cap gold gains in the short term.
However, while the dollar rally is thwarting gains in the gold price right now, the fundamental back drop is still gold supportive, in our view. The number of long gold contracts increased by 23,269 last week, according to the latest CFTC data, the largest increase in more than a year, which suggests there could be some short covering going on and some decent physical demand below $1,300 ( the lows from 8th August). This may limit the downside in the short term.
Technical outlook:
Resistance:
$1,334 - the top of the daily cloud, above here is a very bullish development.
$1,385 - the 100-day moving average and highs from mid-June.
Support:
$1,308 - the Tenkan line on the daily cloud.
$1,285 - the low from 8th August.
Takeaway: Gold is struggling today as the dollar claws back some of last week's losses, however, according to the latest CFTC data demand for gold remains high, which could limit the downside. Thus we may see the market fade any decline in the gold price around the key short-term support levels mentioned above.
IMOH, Clement I.
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