By Fast Brokers – Gold is wrestling with its psychological $1225/oz level as FX markets fluctuate. Gold managed to consolidate yesterday despite sizable volatility in the risk trade. After the EUR/USD dropped beneath May lows, the FX risk trade experienced a solid broad-based rally in reaction to a large increase in U.S. construction spending. However, U.S. equities faded late and the EUR/USD got sucked back into its downward momentum since an improvement in construction spending isn’t enough to turn the tide considering the strength of global headwinds. Japan joined the fray today after Hatoyama announced his resignation. Political instability in Japan has dented the yen’s safe haven status for the near-term. Hence, investors have fewer preferable investment vehicles during times of heightened uncertainty and this should benefit gold. That being said, it’s difficult not to be positive on the precious metal over the medium-term considering its safe haven status and inclination to exhibit a negative correlation with the dollar during risk rallies. Attention should remain on the EU as investors wait for the next shoe to drop concerning the union’s fiscal crisis. Investors will also be looking at U.S. pending home sales to see if America’s housing market is still stabilizing.
Technically speaking, gold faces technical barriers in the form of intraday and 5/17 highs. Additionally, the psychological $1250/oz level should serve as a solid technical barrier should it be reached. As for the downside, gold has multiple uptrend lines serving as technical cushions along with 6/1 and 5/28 lows. Furthermore, the psychological $1200/oz area now becomes a technical cushion.
Present Price: $1223.41/ oz
Resistances: $1225.20/oz, $1227.63/oz, $1229.56/oz, $1232.22/oz, $1235.19/oz
Supports: $1221.69/oz, $1219.16/oz, $1216.02/oz, $1212.52/oz, $1210.36/oz, $1208.18/oz
Psychological: $1200/oz, $1250/oz
(click chart to enlarge)
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