- Gold markets rallied rather significantly during the ECB announcement
- $1500 offer support
- Technical analysis all points to the upside
Gold markets exploded to the upside during the trading session on Thursday as the ECB announced that they were cutting interest rates to -0.5%, and continuing to expand quantitative easing, in a program that is buying unlimited bonds for as long as it takes to turn things around. In other words, the ECB has completely capitulated to the lack of growth, and now it makes sense that quite a bit of bullish pressure in the precious metals should continue to be seen.
Technical and fundamental analysis
The technical analysis for this market is very strong all the way around. At this point, the $1500 level looks massively supportive, as it is a large, round, psychologically significant figure, and will attract a lot of attention. Beyond that, the 50 day EMA is just underneath, and that of course offers a significant amount of support as well. We had previously been in a consolidation area between the $1500 level and the $1600 level. Overall, this is a market that has seen a lot of action in this area, and now that fundamentals are starting to pick up for the gold market as well, it’s likely that we will continue to see buyers on dips.
Beyond that, the uptrend line hasn’t even been tested yet so if we do fall from here it’s very likely that we could go higher. Longer-term, the market breaking above the $1600 level could send this market towards the $2000 level. Gold has just been confirmed in the uptrend by the ECB, and now that the ECB has gone all in when it comes to quantitative easing, it is almost forcing the Federal Reserve to do something drastic as well. In other words, we are still very much in that scenario where the central banks will do everything they can to re-inflate the economy, driving down the value of fiat currencies in general.
The trade going forward
The trade going forward of course is to buy gold on dips and therefore it’s likely that we should continue to go much higher. All things being equal, the 50 day EMA should be massive support but quite frankly it would be very difficult to get down through that level as the explosive nature of the trading session on Thursday certainly has helped solidify what the markets have already shown. To the upside, there will be various resistance barriers in the form of the $1600 level, $1700 level, and so on all the way up to the $2000 level. This doesn’t mean that we won’t get a significant pullback occasionally, but overall selling gold is all but impossible at this point. We are in a longer-term cyclical bull market.