April Comex gold futures prices in early February hit a two-month high of $1,765.90 an ounce as the bulls had just completed a very good start to the year. The month of January saw gold futures prices appreciate about $170 an ounce, or about 10%.
But bears have the upper hand so far in February. Last Friday saw the precious metal notch a two-week low of $1,706.40. Importantly, the recent slide in gold futures prices has produced some near-term technical damage as a six-week-old uptrend on the daily bar chart has been negated.
While no serious near-term technical damage has been inflicted on the gold market, the bulls have faded and need to show fresh power soon. A close below psychological support at $1,700 an ounce in April gold futures would further dent bullish enthusiasm and invite more technical selling pressure.
Serious near-term technical damage would be inflicted would occur if April gold futures prices dropped below strong technical support at the $1,650 level. It would also suggest a near-term market top is in place. And for the gold market bulls to jumpstart a rally and reestablish an uptrend on the daily chart, they will need to push prices above solid chart resistance at the February high of $1,728.60.
Importantly, the longer-term technical posture of the gold market, as viewed on the monthly bar chart, remains fully bullish as prices have been trending higher for 11 years, from the 2001 low of $255 an ounce. It would take a move in nearby Comex gold futures prices below major psychological support at $1,500 to being to produce serious longer-term technical damage and negate the longer-term price uptrend.
Fundamentally, the perceived safe-haven investment asset gold has benefited in recent years from the worldwide geopolitical scene that is arguably some degrees less than stable in a few regions. The ongoing European Union sovereign debt crisis that will not go away has likely added at least a couple hundred dollars of price premium to the gold market. Holders of the shaky euro have, for the past several months, been actively buying gold as a hedge against the potential for further erosion of the euro.
Middle East tensions that are also ever-present also invite safe-haven demand for gold. If the tensions between Iran and the Western world escalate, which many believe is likely in the coming months, it's a good bet that gold prices would spike along with the price of crude oil.
If recent history repeats itself, bargain hunters will step in to buy the dip in the gold market and prices will embark on a fresh move higher.
