Gold Shows Some Muscle

 | Jan 05, 2012 | 11:30 AM EST
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Comex February gold futures have seen an impressive recovery from last week's strong selling pressure that drove prices to a fresh six-month low of $1523.90 an ounce. The precious yellow metal hit a fresh two-week high of $1,626.80 Thursday morning before backing off slightly on a corrective pullback.

Still, the bulls have their work cut out for them if they are to re-establish a near-term price uptrend on the charts.

Despite this week's price rebound, February gold remains in a two-month downtrend on the daily bar chart, and the bears have the overall near-term technical advantage. It would take a move above strong overhead technical resistance at $1643.70 to negate the aforementioned near-term downtrend and to provide the bulls with fresh upside near-term technical momentum.

On the downside, there is solid technical support located at last week's low of $1523.90 in February gold futures. A daily close below that key chart level would produce fresh, serious near-term technical damage to suggest a challenge of major psychological support at the $1500.00 level.

Looking from the longer-term technical perspective, the gold market remains in a nearly 11-year price uptrend on the long-term charts. The recent decline in prices is just another corrective technical pullback, also called a reaction low, in an overall long-term price uptrend. In fact, the long-term technical posture of the gold market suggests the likelihood that gold-futures prices could notch a new all-time high in 2012.

Price action in the marketplace on this first week of the new year has seen fresh speculative monies begin to flow back into the raw commodity sector after many individual commodity markets were beaten down hard during the last half of 2011. From a fundamental perspective, recent improved readings on the U.S. economy and an apparent stabilization in the European Union's sovereign debt crisis have given traders and investors a better risk appetite, and that is bullish for the raw commodity markets, including gold.

Gold bulls have another trump card: Gold is perceived by many traders and investors as a safe-haven asset, or even as a world currency. The recent jawboning between the U.S. and Iran has produced a modest flow of safe-haven buying interest into the gold market. Any escalation in that situation would likely produce significantly heavier flows of investor monies into gold. And a flare-up in the European Union debt crisis, which would be not at all surprising, could produce keener safe-haven moves into the gold market. Just keep in mind that recent price history in gold shows inconsistent behavior when the EU debt crisis heats up.

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