Gold Holds 40-Day Moving Average, Safe-Haven Bounce
New York (Feb 9) Gold futures popped higher in overnight action and is firm in early New York trading. Safe-haven demand is supporting gold amid on-going uncertainty about the political situation regarding Greece and the eurozone continues. The new Greek government is expected to need a new funding program once the current bailout concludes at the end of February.
Technically, Comex April gold futures have edged higher, after holding key 40-day moving average support at $1,233.90. The gold contract slid below that zone intraday on Friday, but rebounded above it by the final bell.
Overall, last week gold futures sustained fairly heavy selling pressure. The market is in retreat from a failed breakout above the top of a rising bull channel seen in green on Figure 1 below. Gold has been climbing since early November, but late January saw an accelerated phase which propelled the yellow metal above the $1,300 per ounce zone.
The failure to sustain the upside breakout above the bull channel leaves gold in a corrective phase. For now, the 40-day moving average has become important support. If that zone were to give way this week, it would show the bears remain in control and gold would be vulnerable to further downside testing. Next target lies at 50% Fibonacci retracement support of the November-January rally move at $1,220.40. Below there the 61.8% retracement at $1,199.60.
Gold's bounce on Monday could be corrective following last week's big price plunge. The technical view remains vulnerable to the downside. The burden is on the bulls to defend key 40-day moving average support to prevent further declines this week.
On the upside, initial resistance and a bullish target lies at $1,274.60, the Feb. 5 daily high. A move back above that initial resistance area would be a positive short-term signal and would open the door for a retest of the $1,308.80 high hit on Jan. 22.
Bottom line? The 40-day moving average will be a key "toggle" point for this week's action. If it holds, the bulls will look to regain control and probe back toward the upper end of the bull channel. On the flip side, if the 40-day moving average gives way, gold will be vulnerable to a test of Fibonacci retracement supports on the downside.