Gold Expected to Remain Strong

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The dovish comments made by Mario Draghi have resulted in a full on retreat for the euro. This has led to the value of the currency dropping against the US dollar by more than 200 pips, and even more against the New Zealand dollar and other beaten down currencies. With the possibility of easing by one of the most important central banks in the world, one might expect commodities such as oil and gold to rise, but increased dollar strength may mitigate the strength of commodities.

In spite of earlier weakness, analysts are still optimistic about the strength of gold in the near term. After hitting a high of $1,190, gold has inched its way down to $1,165. The big rally, followed by a slight dip, shows a definite bullish flag pattern. It’s important to note that the pattern is only a bullish sign if it breaks the top of the flag, which is currently almost $1,180.

Chart gold oct 2015

However, some secondary signs indicate a possible bullish breakout soon. The MACD is trending farther above both the 0 level and the signal line, suggesting a bullish direction regardless of the dip. At the same time, the RSI indicator shows its own upward trend that is pulling away from overbought assets, which could lead to another leg up.

Looking to the future, breaking $1,180 could pave the way for gold to hit $1,200. A measured move target shows a potential for it to approach $1,250. Bulls should rein themselves in for now, as a failure to break the flag pattern could go the other way and lead toward a 100-day MA around $1,140.

[Credits of the photo used for the featured image: "P2102853” by Will Culpepper, used under CC BY-SA / Color filters added, image cropped]

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