Gold Price Bounces From Near Channel Bottom
New York (May 4) Gold prices are firmer in early trading Monday. Buying interest emerged as the yellow metal fell toward the lower end of a minor bear channel on Friday. The very short-term trend bias is weak, but improving momentum supports a minor bounce higher within a minor bear channel.
Gold prices are vulnerable to short-term choppy trade over the next few days as traders await this week's major economic event or Friday's release of the April U.S. employment report. Economists are forecasting a 220,000 increase in non-farm payrolls last month, with a modest decline in the unemployment rate to 5.4% from 5.5%.
Taking a look at the technical picture, since early April, Comex June gold futures have been sliding lower within a minor bear channel, shown in green in Figure 1 below. The lower boundary of the channel comes in roughly around $1,165 and is acting as support for gold.
In the bulls favor, the 14-day relative strength index shows momentum rotating higher, at 48% in early trading Monday. Overall, momentum has been choppy and in a tight range around mid-range levels, but the bias is turning higher and could support short-term strength.
On the upside, initial resistance lies at the 20-day moving average at $1,196.60, shown in blue. That is an initial hurdle for the bulls and sustained gains are needed above that line to improve the short-term trend outlook and to open the door to a test of the top of the channel. The top of the channel offers resistance around $1,210.
But, for the bulls significant resistance zone and a major ceiling is seen at $1,224.50, the April 6 high, marked at Point A on Figure 1 below. The bulls would need to post a strong close above the $1,225 region to significantly improve the near and medium term trend picture for gold.
Overall, the near term trend bias is weak. But, the gold market is not in a strongly trend mode currently. Momentum has been lackluster. Bigger picture, gold is trading in a large neutral range for now, defined by major support at the $1,142-$1,134 area.
Key levels for traders to watch: $1,225 on the upside —a strong rally above that ceiling would reinvigorate the bulls and open the door to a fresh buying wave. Initial support lies at $1,168-$1,165 and declines under that floor would be a weak signal. Major support comes in at the $1,142-$1,134 area. If that latter zone were to crack it would significantly weaken the chart picture for gold.
Source: KitcoNews
