By Tomasz Wisniewski, Alpari
December and January were great for gold. February started off very well too, although we do currently have a small bearish correction. Does that mean that the optimism is over and we should get ready for a new drop? In my opinion, not really. Technical analysis is telling me that we should see new mid-term highs soon.
Let’s start with the fundamentals. The rise on gold can be explained by a few factors. The first one is the demand from China due to the Chinese New Year. The second factor is Brexit and the third one is the China-US trade war. What’s more, USD has been relatively weak since mid-December, which is also helping to push up gold prices.
The problem with the fundamentals is that you can explain pretty much anything with random events. The situation is different with technicals. They need to be solid and there is no room for random interpretation. In this regard, we’re on a mid-term uptrend, so the chances of a further rise are relatively high. In my opinion, the most important bullish factor here is the breakout of the 1,307 USD/oz resistance (orange). This level is absolutely crucial for the long-term situation on the chart. As long as we are above this level, the buy signal is ON. This instrument is currently in correction mode and is about to test 1,307 from above. Any bullish price action here, like a hammer or engulfing, will be an excellent buying opportunity.
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My outlook on this precious metal is positive as long as the price stays above the blue upwards trend line. The potential target is the long-term high at 1,357 USD/oz. The chances that we will get there are pretty high.