(By Mani) Gold's much awaited technical breakout on Friday now presents the potential for much more exciting price action over the coming days.
While illiquid trading conditions certainly enabled the move, this week with returning US participants and in turn more "normal" trading conditions, the hope is that this technical and momentum turnaround presents gold with the ingredients to target $1800, once again.
"We're not expecting an immediate rush into gold. The uncertainty surrounding the Euro group meeting on Greece has impacted the EURUSD and in turn gold," UBS strategist Edel Tully wrote in a note to clients.
Gold players will need time to assess this technical breakout, but the inclination should be of the friendly variety. Looking at the order book, it doesn't give a clear signal, with little either side of $1750.
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"Before Friday's breakout, we observed a client base that was quite frustrated with gold, although not so fed up to short the metal, but certainly unmotivated to return to the market in any kind of size until a technical breakout occurred. Now that's happened, the next 24-48 hours of price action should be quite interesting to observe," Tully said.
The longevity of those who entered long positions on Friday will also be critical. In a sense, much rests of the patience level of participants from here. The risk is that given the recent subdued sentiment, failure to trade above $1750 could quickly lead to yet another wave of disappointment.
While there has been little appetite so far to push the market aggressively higher, some eagerness is expected to buy dips in this cautiously optimistic atmosphere.
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Certainly, last week's confirmation of strong official sector buying in October helps matters, somewhat providing investors with an alternative comfort blanket after physical demand disappointed this year.
"The assurance that central banks are likely to come in and help insert a gold price floor certainly helps encourage other market participants to buy dips," Tully wrote.
From a technical perspective, Friday's sharp advance has seen the MACD settle above its zero line and closing break of $1748.95, the 62 percent retracement of the October/November sell-off. This bullish development suggests there is potential for more upside in the near-term and resistance is at 1774.98 ahead of 1796.05, the October high. Support lies at 1728.35, the Nov. 22 low.
In the week to Nov 23, gold ETF holdings extended 0.08 million ounces (moz) to 88.02moz. Investors made additions to their holdings in the iShares fund to the tune of 38koz, ETFS (LSE) fund rose 49 thousand ounces (koz), ZKB fund was up 11koz and UBS fund rose 12koz. On the contrary, db Physical Euro Hedged fund was down 19koz, SPDR and CS Gold funds were down 14koz each.