The news wasn’t the fresh six-year highs for gold, it was the fact that a previous resistance level acted like a support level that was the real story.
As Dow Jones Newswires reported, August futures for gold on the Comex exchange settled at $US1,423.30 ($A2,029) an ounce — which was a 0.9 percent jump on the previous session and a six-year high.
But, that may not be the most important part of the trading action yesterday.
According to Brien Lundin, editor of the Gold Newsletter, the fact that gold had “fallen overnight to test that a key $1,400 level and bounced from that,” was the real action.
“I believe that was an important confirmation that got technical traders to jump in.”
For about five years before gold’s recent gold run, $1,360/oz was the key resistance level that the precious metal just couldn’t get over — but $1,400 has been called as the resistance level of the recent run.
A resistance level is a price that a commodity or equity will touch or get over in intraday trading, but never close above.
Alternatively, the support level is the price that a commodity or equity will dip below in intraday trading, but never close below.
In either case, ‘technical traders’ will place stops on their orders to either buy when the support level is hit, or sell when the resistance level is hit.
It’s what makes getting over those levels so difficult.
But the fact that gold has, in the estimation of Lundin at least, tested the previous resistance level but not triggered a wave of selling is a sign that traders that trade only by looking at charts have recognised that gold above $1,400 is the new normal.
The prospect of gold remaining above this level appear strong at least in the short term, with a weak earnings season in the US combined with more trade war nonsense giving the precious metal support.
“Gold is still in a bullish trend and could see its upward momentum return on disappointing earnings results and lack of progress on the trade front,” Edward Moya, senior market analyst at Oanda, wrote.
This content does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.
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