After a falling off from the mid-January highs, bullion and gold-related exchange traded funds could finally be breaking out.
COMEX gold futures were trading around $1,203 per ounce Thursday.
Rich Ross, head of technical analysis at Evercore ISI, argues that bullion is creating a key bullish technical formation that could foreshadow an additional 8% rally, reports Amanda Diaz for CNBC.
Ross is pointing to the double bottom formation in the gold chart. For instance, gold bullion traded at a bottom of around $1,140 on November 5 and more recently on March 17. In technical analysis lingo, the charting pattern illustrates a drop, a rebound, another drop to the same level as the previous bottom, and another rebound.
This formation “should provide a solid foundation for a run higher” and establishes a near-term floor, Ross said.
Consequently, traders should look to the 100-day moving average, which is around $1,206 per ounce or a $115.87 price in GLD, to gauge the short-term rebound.
“I think we have what it takes to punch through this moving average,” Ross added. “It’s had some success along the way calling the lows and providing support early last year.”
On the fundamental side, volatility in U.S. equities, concerns over the Greek debt situation in Europe and geopolitical risks in the Middle East are fueling bets on gold as a safe-haven asset. Additionally, the U.S. dollar has somewhat depreciated, propping up USD-denominated commodities.
“The negative impact of these factors on gold prices could be limited in 2015, however, as much of the impact from these issues already is baked into the price of gold,” according to the CPM Group, Mineweb reports. “In fact, any significant weakening of investor enthusiasm for U.S. stocks, or the dollar, could prove supportive of higher gold prices, the reverse of 2014’s trends.”
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Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own shares of GLD.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.