Gold looking for a new support level

The sharp break above $960 could suggest a further jump to around $1,110

JOHANNESBURG - 

The sudden upward move in gold last week wasn't entirely surprising. Since March this year, many investors have experienced some frustration as gold has been consolidating between $900 and $960 an ounce. Then on Wednesday, the yellow metal broke out decisively above the top of a bullish triangle pattern which I have been writing about for a few weeks. While gold has the tendency to defy the technicals this break suggests a further upside move to the $1,110 level. If gold closes above $1,000 per ounce during the next few sessions, it could establish a new support level and finally hold above the $1,000 level. If this happens then we could be on the brink of the next leg up in the gold bull market, but we first need to see a break through the all-time high that was set on March 17, 2008, when it hit a high of $1030.80 per ounce.

What is interesting about the recent move in gold is that it was not related to events that typically push the metal higher. The value of the US dollar has not changed significantly enough to be the key driver behind this move and oil prices haven't been especially strong by their recent standards. For months the price of gold has been tracking the price of oil and the value of the US dollar. As the dollar weakened, the gold price moved upwards. And, although the prices of gold and oil don't exactly mirror one another, there is no question that oil prices do affect gold prices. If oil prices rise or fall sharply, investors can expect a corresponding reaction in gold prices, often with a lag.

On Friday when New York opened, the U.S. Labor Department reported U.S. Nonfarm payrolls declined 216,000 in August. The fall was smaller than economists expected at 233,000, but the unemployment rate rose to 9.7%, the highest level since June 1983. The US dollar firmed on the news, sending the euro down to 1.4210. The gold market was extremely volatile for the next hour, trading between 985.00 offered, the day's low, and 992.50. And, then later the metal traded in the mid $990's

In my previous up-date, I mentioned that I was of the opinion that we had seen the seasonal low for gold in July. Based on similar seasonal patterns we usually witness a rise during September.  According to researchers, gold showed gains for the past 16 out of 20 Septembers. In contrast with gold's tendency to do well in September it has historically been a bad month for equities. .

Gold tends to do well in September because demand tends to pick up prior to several events. Jewellery makers start to stock gold ahead of October's Diwali, one of India's most important religious festivals. September also kicks off the post-monsoon wedding season in India. Jewellery makers also stock gold in September ahead of the holy month of Ramzan in Muslim countries such as the United Arab Emirates. Gold demand in China tends to rise in the months following the October 1 national day through to the Chinese New Year in February.

While there is no evidence of people rushing in to buy gold if it manages to hold above $1,000 gold will become a hot topic all over the news, and the average investor (who hasn't bought yet) will finally start to get in.

Technicals

The break above $960 was a significant move in gold as it shot through the resistance level of this triangular pattern projecting further upside to around $1100.

About the author

David Levenstein is an investment advisor who brings over 29 years experience of futures,equities, forex and bullion. He has traded equities, futures (commodities, equity indices and forex), precious metals (bullion and coins), for his personal interests as well as for clients. He has worked and lived in Los Angeles, Bangkok, Hong Kong, London and Johannesburg. He used to write his own column Commodity Corner, in MoneyWeek, and The Prudent Investor in ClassicFeel. He has also made appearances on CNBC, Summit TV, and Classic Business. commodity@wol.co.za

Information contained herein has been obtained from sources believed to be reliable, but there is no guarantee as to completeness or accuracy. Any opinions expressed herein are statements of our judgment as of this date and are subject to change without notice.

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responses to this article

why gold high.? In Pakistan the gold rate is 995$.. 30500. thirty thousands five hundreds, no men or women buy the jewellery because the gold rate is high. If gold 900$ to 930$ then pakistani mes or womens can buy, because there dollor rate is 82.70$. All . .more Pakistani peoples request that the gold fall in 920$,there is much then more rise rate of gold. . .less by Waqar ahmed on September 07 2009, 03:59 Find this comment inappropriate? Report it

Why Gold High In Pakistan the gold rate is 995$.. 30500. thirty thousands five hundreds, no men or women buy the jewellery because the gold rate is high. If gold 900$ to 930$ then pakistani mes or womens can buy, because there dollor rate is 82.70$. All . .more Pakistani peoples request that the gold fall in 920$,there is much then more rise rate of gold. . .less by Bewafa_zindgi@hotmail.com on September 07 2009, 04:01 Find this comment inappropriate? Report it

Bewafa_zindgi@hotmail.com In Pakistan the gold rate is 995$.. 30500. thirty thousands five hundreds, no men or women buy the jewellery because the gold rate is high. If gold 900$ to 930$ then pakistani mes or womens can buy, because there dollor rate is 82.70$. All . .more Pakistani peoples request that the gold fall in 920$,there is much then more rise rate of gold. . .less by waqar on September 07 2009, 04:02 Find this comment inappropriate? Report it

DD GOLD IS A FEAR METTLE IT HAS THE WORSE RETURN PERCENTAGE WISE by JOHN HOLMES on September 07 2009, 15:39 Find this comment inappropriate? Report it

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