Gold Bulls Regain the Upper Hand; Crude Carves Out a Bottom

 | Aug 16, 2011 | 1:00 PM EDT
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The gold market bulls have quickly regained their footing after prices late last week suffered a modest downside correction. December Comex gold futures soared to a fresh record high of $1,817.60 an ounce on Thursday before reversing course intraday and closing solidly lower, near the daily low. Then on Friday gold showed follow-through selling pressure to throw a scare into the bullish gold camp.

But the precious yellow metal has rebounded in strong fashion early this week, once again providing bulls with solid near-term upside momentum.

Fundamentally, gold continues to see safe-haven buying demand from investors spooked by U.S. and European Union debt woes and by gyrating currency markets as the specter of a double-dip recession looms. Indeed, economic and political factors will likely continue to push gold prices still higher. Price history in the gold market shows that downside price corrections have been bargain-hunting buying opportunities for the perceived safe-haven asset. Gold market bulls will correctly point out to the naysayers that their metal has outperformed nearly every other investment asset for the past 10 years.

Technically, gold futures prices remain in a 10-year-old uptrend on the longer-term charts and in a 6.5-month-old uptrend on the shorter-term daily chart. The fact that gold futures prices this week have been able to rebound strongly from last week's selling pressure now suggests a new high will be scored sooner rather than later. There is stiff overhead technical resistance for the active December gold futures contract at the all-time high of $1,817.60. Should prices close above that level, the door would then be opened to a quick challenge of chart resistance at $1,850 an ounce, and then at $1,900.

At present, there are no significant early technical warning signals to suggest a market top is close at hand for gold.

Meanwhile, the other major and influential raw commodity market, crude oil, has seen Nymex futures prices rebound solidly from last week's low of $75.71 a barrel, which was a 15-month low for the September contract. With prices presently trading around $10 a barrel higher than last week's low, traders seem to have quickly factored into crude oil's price structure the prospects of less demand for liquid energy from the sputtering major economies of the world.

While it is now likely that a market bottom is in place for crude oil, it should not be assumed that prices can embark upon a sustained uptrend any time soon. The overall technical posture of the crude oil market remains tilted toward the bearish camp. More likely for crude oil prices is a choppy trading range between $75 and $95 in the coming weeks -- or longer.

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