Gold Resumes Its Upward Trek

 | Oct 27, 2011 | 1:30 PM EDT
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Comex gold futures for December delivery scored a fresh four-week high of $1734 Thursday morning. The precious yellow metal has seen its price appreciate by around $200 an ounce from the late-September low of $1535. Gold prices are now in a four-week uptrend on the daily chart and the bulls have regained near-term upside technical momentum to suggest prices can continue to trend sideways to higher in the near term. Longer-term charts show nearby Comex gold futures prices have been trending higher for the past 10 years, from a low of $255 an ounce scored in 2001.

It's been a bumpy and confounding ride for gold-market traders the past few weeks. On a day-to-day basis, trying to determine gold's price direction based on the fresh fundamental news of the day has been frustrating. For example, gold is viewed as a safe-haven investment asset whose price should appreciate when investors' risk appetite shrinks. Yet, on the risk-off days when most markets were lower and the perceived safe-haven assets such as the U.S. dollar and U.S. Treasuries were higher, gold's price was generally lower.  On those risk-on days in the market place, when world stock and commodity market prices rally, gold has done the same. Such is a prime example of why trying to determine the day-to-day price moves in any market, based on the news of the day, can be frustrating, if not futile. It's also why so many veteran market watchers turn to the charts for guidance.

Speaking of fundamentals, the major factor affecting gold recently has been the European Union's sovereign debt crisis and efforts to deal with it. Just this week, gold prices saw fresh safe-haven demand resurface to drive prices higher. Early in the week, the market place showed more trepidation regarding an ultimately successful resolution to the EU debt crisis. Gold prices did pause and consolidate recent gains Thursday following an 11th-hour EU agreement Wednesday to bailout Greece, and a bigger rescue package for other debt-strapped EU nations.

Importantly, the gold market this week appeared to take note of the likelihood that any EU debt-crisis-bailout package will include the European Central Bank implementing more monetary stimulus measures. It's also very possible the U.S. will undertake further monetary policy-easing to boost its still languishing economy. With at least two major central banks of the world poised to print more money, the specter of problematic inflation becomes more likely. Gold and most other commodity markets' price rallies this week can be attributed to notions of rising inflationary pressures in coming months. Commodity markets, including gold, generally appreciate during times of increasing price inflation.

The recent resumption of the price uptrend in gold suggests a near-term upside price target for the bulls of $1800 an ounce. Above that lies major technical resistance at early September's all-time high of $1923.70 scored in December gold futures. A dip in nearby gold futures prices below psychological support at $1600 would dent bullish enthusiasm, suggesting more choppy and sideways price action is forthcoming.

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