The price of gold has been on a rally over the last one week, rising from well below $1,150 to the current level of about $1,205. Based on recent trend, the price of the yellow metal is currently testing a major resistance zone of $1,200 to $1,210.
The current rally in the price of Gold comes following a recent comment by Fed Chair Janet Yellen that the policy makers won’t be rushing on rate hike. This signaled some degree of caution towards the hyped U.S. economic growth, thereby sending some signals of doubt in the anticipated interest rate hike.
Many expected the interest rates to go up by the end of H1 2015, but based on recent developments, it now appears that the Federal Reserve won’t be hiking the rate for the sake of meeting investor expectations.
Therefore, the price of gold has responded in kind and in the process given gold bulls a gift that seems to have been long overdue, following a recent plunge that started at the end of January.
The rise and fall of Gold in 2015
In January, the price of gold did rise from a low of $1,165 to a high of $1,300, marking one of the best bullish runs of the yellow metal in several months. Right now, it appears as though gold price could be about to go on a similar run, after recent gains, which have taken it to well under $100 to reaching January highs.
The common element on both occasions is a fed comment that signaled a likelihood of a delay in hiking the U.S base interest rates. However, as we continue to move towards the “big day”, many would want to know the best approach to take from the point of view of price action trading on the yellow metal.
Watch out for upcoming fundamental data
From a technical perspective, the price of gold is currently testing a recent and major resistance zone and considering the fact that we are closing on major economic events starting with GDP data for Q4 2014, expected on March 27, and Jobs data in the next couple of weeks.
Despite the precautionary approach to interest rate hike by the Federal Reserve, the U.S economic data have so far continued to impress and another positive commentary would subsequently end the recent rally in the price of gold.
Additionally, considering the fact that the Chinese economic growth rate is still on a downward trend while India recently retracted on a decision to lower duty on gold imports, the yellow metal still faces several challenges to reaching its January highs.
If anything, the recent rally is a magnificent reward to gold bulls, especially considering the overall market bias, and hence some would be looking to cash in at the current level which would again put more pressure on the price.
The same scenario is set up on SPDR Gold ETF
The SPDR Gold ETF (GLD, Financial) appears to confirm the current outlook in the price of gold. The shares are currently trading at $115.60, well within a major resistance zone of $115 to $116, and seem well set for a reversal.
From a technical perspective, the price of one share of SPDR Gold ETF appears to be forming the right shoulder in a head and shoulders pattern, which at the current level would suggest a downward movement towards $110 within the next few weeks.
Conclusion
The bottom line is that the recent rally in the price of gold lacks enough catalysts to sustain it towards levels seen in late January. In fact, based on recent events, a lot more could count against a continuous rally thereby signaling an end to the current run.
As such, the recent rise in the price of Gold is a sucker rally triggered by Yellen’s recent comment on U.S interest rate hike, but based on the current trend in the U.S economic data; there is really not much that could suggest the possibility of retracting on the decision to raise interest rates. A delay, maybe a possibility, but there is more likelihood that this wouldn’t last beyond Q3.
Therefore, this would trigger more optimism in the U.S equities and the USD, which means doom and gloom for the price of gold, at least in the short-term.
