Where Does Gold Go After Hitting A Three-Week High?

By Neils Christensen of Kitco News
Wednesday October 26, 2016 12:51

(Kitco News) - After hitting a three-week high overnight, gold prices are modestly lower, dipping below the 200-day moving average and analysts are mixed as to where prices are headed next in this current consolidation phase.

Gold analysts are watching the 200-day moving average closelyGold pushed lower Wednesday after the release of U.S. new home sales, which despite missing expectations, were up almost 30% compared to last year. December Comex gold futures last traded at $1,268.20 an ounce, down 0.42% on the day.

In a note to clients Tuesday, commodity analyst at iiTrader, said that for gold to maintain its momentum the price needs to hold above the 200-day moving average, which for the December contract comes in at $1,272.40 an ounce. They noted that a continued close above this level could push prices to their next resistance level at $1,283 an ounce.

Colin Cieszynski, senior market analyst at CMC Markets Canada said in an interview with Kitco News, he is also watching the $1,280 area. He added that close above this would signal an end to the correction -- which saw prices drop 5%. But, he added that there are already signs that the correction could be over.

“I think you need to see a close above $1,282 to confirm the uptrend but you are getting some confirmation now. You are seeing higher lows and support is moving up from $1,260 to $1,265. Generally speaking, gold has turned the corner,” he said. “But for people who really want confirmation they need to see a close above $1,282.”

While Cieszynski remains bullish in the near-term, he does see limited gains as $1,300 would probably represent a ceiling for the market, at least until December when the Federal Reserve reveals its interest rate trajectory for next year.

He noted that gold’s 50-day moving average comes in at around $1,305 an ounce, which he said he suspects would attract short-term sellers.

“I think it is going to take a shock to markets to drive prices above $1,300 and that shock would be a Trump election victory. That is currently the one thing markets aren’t expecting,” he said.

Although gold has room to move higher in the near-term, some analysts aren’t convinced that gold’s correction is over as long as price are below $1,300. Fawad Razaqzada, technical analyst at City Index, said in an email to Kitco News that $1,300 to $1,310 is the area to watch as this was the key reference point before the metal’s breakdown.

He added that rising expectations for a Fed rate hike will continue to weigh on gold.

“I am not convinced about the prospects of a more noticeable rally because ultimately the rising U.S. bond yields reduce the appeal of gold,” he said. “I will remain sceptical for as long as $1300/10 holds as resistance.”

On the Downside, Razaqzada said that he is looking to see if support at $1,260 will hold.

“A break below $1260 could pave the way for a re-test of the $1250 support and if the latter also gives way then we could see the onset of a much larger correction,” he said.