The gold market saw quite a run-up from March through May, crossing $720 an ounce. Since then, there has been a period of consolidation, or flatness. But in just the past few days, we've had a confluence of factors giving gold a renewed shine for investors. A weak U.S. dollar, strong crude oil prices, and uncertainty about Iran and Middle East tensions in general have been supportive of a rebound. In the wake of the June 29, 2006, Federal Reserve policy meeting, COMEX gold futures spiked up to a three-week high. We've also seen London gold prices spike to a one-month high on speculation the European Central Bank will quicken its pace of interest rate increases.
The Fed raised its key short-term lending rate a quarter-point to 5.25 percent, but comments released after the meeting were perceived as a little more dovish as to future policy actions. The gold market subsequently took off amid a sense that the Fed may be changing their policy outlook, and an end to its series of interest rate hikes may be at hand. I think this tends to favor a bullish condition for gold, but there are some key economic reports that bear watching. If we see signs of inflation in the Consumer Price Index report, that could trigger the Fed into more rate hikes, so that's something we'll want to be watching. On Friday July 7, we have monthly employment data released, and that will likewise be a key number for participants in this market. With the post-Fed meeting move, I think we've seen a lot of small speculators jump back into this market. We've also seen some traders tallying up the overall positive performance of metals funds, and may be jumping back in.
However, we still haven't seen the funds jump in the market on the buy side as aggressively as they did earlier in the year. I think we need to see that activity to see a major move higher in gold futures, or an increase in Mid-East tensions.
Looking at the technical picture, we saw old resistance at $590 an ounce in front-month gold futures taken out strongly Thursday afternoon following the Fed meeting, and also $600. I see the next resistance at about $628, and think a close above $637 could really pose a significant reversal and a major new uptrend.
As far as support, I'm watching $608, $600, and $594. Gold could test the low $580s if that level fails to hold. I'd advise you to buy this market on dips, and position yourself at support levels with stops. Again, keep an eye on upcoming economic data and developments in the Middle East.
There is still some uncertainly in the market. Gold is more attractive to investors when we get uncertainty, and tends to be a safe haven. I do think we'll see more money shift to the gold market and I am looking for further gains.
Greg Milkovich is a Senior Market Strategist with Lind Plus, Lind-Waldock's broker-assisted division. He can be reached at 866-631-6216 or via email at gmilkovich@lind-waldock.com to discuss this topic, or others.
You can hear market commentary from Lind-Waldock market strategists through our weekly Lind Plus Markets on the Move webinars, as well as webinars on other topics of interest to traders. These live, interactive webinars are free to attend. Go to www.lind-waldock.com/events to sign up.
Past performance is not necessarily indicative of future trading results. Trading advice is based on information taken from trade and statistical services and other sources which Lind-Waldock believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder.
Futures trading involves substantial risk of loss and may not be suitable for all investors. © 2006 Lind-Waldock® a division of Man Financial Inc All Rights Reserved. Futures Brokers, Commodity Brokers and Online Futures Trading. 141 West Jackson Boulevard, Suite 1400-A, Chicago, IL 60604.
