A Fast Start for Gold

 | Jan 10, 2012 | 11:00 AM EST
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February Comex gold futures scored a fresh two-week high of $1,641.40 Tuesday morning. The precious yellow metal has rebounded by more than $100 an ounce from the Dec. 29 low of $1,523.90. The gold market bulls are starting out the new year with fresh near-term upside technical momentum, suggesting that a market low is in place.

The gold bulls, however, have more upside work to do in to suggest that a near-term price uptrend can be re-established on the daily bar chart. A move above near-term psychological resistance at $1,700 in nearby gold futures suggests that a near-term price uptrend has been re-established and that prices could continue to trend sideways to higher in the near term.

Importantly, the longer-term price uptrend on the monthly Comex gold futures chart -- going on 11 years -- has never been in serious danger of being negated. In fact, the decade-old uptrend in the gold-futures market, from the 2001 low of $255 an ounce, has seen several significant downside corrections of more than $100 an ounce, only to rebound and go on to score new highs for the existing uptrend. Nearby Comex gold futures scored a new all-time record high of $1,923.70 an ounce in early September 2011. It would take a move in nearby gold futures below major psychological support at the $1,500 level to begin to produce longer-term chart damage to jeopardize the longer-term price uptrend.

From a fundamental perspective in gold, it also appears that there has been a subtle, yet important, shift in investor psychology: Gold is now being viewed as more of a safe-haven investment asset, while still being able to ride the coattails of the raw commodity sector as a risk asset when that sector rallies. Indeed, the gold bulls have been able to have their cake and eat it, too.

One major detriment to the gold market's upward ways has been a stronger U.S. dollar against other major currencies of the world. Recent history shows gold and the U.S. dollar index (a basket of six major currencies weighted against the greenback) have generally traded in an inverse fashion. However, during times of heightened geopolitical or world economic uncertainty, both gold and the U.S. dollar can appreciate at the same time.

Gold market bulls reckon that the European Union sovereign debt crisis will escalate (again) in the not-too-distant future. While it's likely the U.S. dollar index would rally on such an occurrence (due to the likely weakening of the euro), it's also likely that investors would seek gold as a safe-haven asset and purchase the metal with euros or other world currencies. It's a good bet that will happen in the coming weeks.

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