Key Points

• Long term fundamentals remain bullish
• 200 Moving Average Saves the day
• Bulls to face major resistance at $1850.
• Minor resistance around $1800 region

As markets remain optimistic about another stimulus package being delivered by the U.S. policy makers, that additional liquidity will be bullish for the markets including precious metals. In March when the first stimulus package was rolled out by the U.S. Federal Reserve gold rallied to all times high which peaked at $2079.84 as gold bugs accumulated the safe assets in fear of increased inflation.

The majority of yields from Treasury Bonds of major governments are now tinkering in the negative region. Germany and U.S. 10 year TBs yields are already in the negative hence this stimulated the demand for gold as a medium to long term store of value. Yields are not set to flip into positive returns any time soon as the demand for these assets remain robust due to rising risks associated with the equity markets.

Quantitative Easing is eroding the value of fiat currency and long term investors are dumping cash for precious metals. As the value of cash continue to depreciate the demand for gold as a safe haven asset is bound to remain robust. Ultra low interest rates have been pivotal in driving up the price of gold as the precious metal remain above $1800 per ounce.

Gold Daily Chart

Technically, after the breakout from an ascending channel at the $1850 support region bears brought down prices to the 200 Moving Average. Gold lost nearly $100 in the process before the 200 MA came to the rescue. A strong price correction cannot be ruled out if prices mange to strongly bounce off the 200MA.

For any significant bullish movement to remain solid bulls needs to overcome the $1793.37 to $1817.03 resistance region. Failure to overcome this barrier will likely trigger a bearish continuation. In the latter case, bears will target aim for the May support region around the $1680 handle. Such a move cannot be ruled out as large investors continue to close in their profits creating sufficient room to buy the deep in the process.

The price action has just completed monthly trading cycle, picking from the previous price movement it is worth speculating that the market is now entering into a bullish cycle. This stipulates that the price of gold is inclined to turn bullish as the year draws to an end.