Gold Market: Bulls Could Be Preparing To Take The Next Step To The Upside

Gold continues its stabilization, balancing along the highly psychological $950/oz level.  Our resistance and support levels are fairly tight as the S&P battles its demons at 900, meaning consolidation could continue for the immediate-term.  Meanwhile, gold is building a new base which can serve as solid support in the future.  Our 2^nd and 3^rd tier uptrend and downtrend lines reached an inflection point today, highlighting the relative importance of present levels.

Gold continues to exhibit a positive correlation with U.S. equities.  The recovery in global equity markets is sending oil sky high while the Dollar depreciates across the board, sparking fear of inflation.  Gold has served as a reliable hedge against inflation in the past.  As a result, investors are fleeing to the precious metal.  Additionally, we wouldn’t be surprised if China is aggressively purchasing the precious metal to diversify its reserves.

While momentum is in favor of the uptrend, the downtrend still has several upcoming barriers preventing gold from a large breakout to the upside.  To give you a better idea of the limitations to the upside trend-wise, create layers of downtrends beginning from March 2008 highs and connecting through February 2009 highs.  If the precious metal can manage to rally above these potential downtrend lines, then we may witness an all-out bull trend.  The fact that gold is stabilizing around $950/oz is a positive sign indicating bulls could be preparing to take the next step to the upside.

Fundamentally we maintain our resistances of $950.87/oz, $953.40/oz, and $955.66/oz with fresh top-ends resting at $959.24/oz and $961.45/oz.  To the downside, we see supports of $948.96/oz, $946.33/oz, $944.48/oz, $942.45/oz, and $940.45/oz. Gold is currently trading at $950.50/oz.

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