Wondering why gold has moved by over $20 in the last few minues? Wonder no more - according to a note just released by Citi analyst Tom Fitzpatrick, the gold correction "has run its course and a rally is now back on the cards." Granted it is not all smooth sailing - "Gold may drop to $1,550 before turning", but when the turn comes, Fitzpatrick sees it as going all the way up to $2,400. He has the following technical observations: "Only a weekly close below $1,535/oz means corrections may be deeper." The result can be seen on the chart below. Incidentally this is a 1:24 scale replica of what will happen once the Fed and ECB proceed with the only logical step which is doing what they do best. Unless, of course, the plan is to have a modest war in the middle east to distract everyone from the economy. Because we have never seen that movie before.
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From Citi:
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- Held the 55 week moving average on a weekly close basis ($1,567)
- Failed to post a weekly close below the Sept low ($1,534)
- Remains in the bullish channel ($1,544 this week)
- The correction down looks to be over as we stabilise at these support levels and a rally back up is on the cards
- Resistance levels are at $1,802 followed by the trend high at $1,920.
- Our long term target is $2,400.
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- Held the trend and 200 day moving average as support.
- Positive momentum divergence reflects weakness in the move down here and warns of a turn back up
- Held the low from Oct 2011 and has formed a double bottom within a triangle
- A rally through 139k would open the way for a move to the double bottom target of 153k (20% higher)
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- The move down on the Gold / Bonds Ratio has been almost exactly the same as that seen in 2008
- The 2008 correction down was 2.81 points on the ratio over 99 sessions
- The 2011 correction down which hit a low on Dec 29th was 2.84 points over 93 sessions
- We also have positive momentum divergence on the chart - similar to that seen in 2008 at the lows of the move down.
- The trend resistance from the highs converges with the 200 day moving average (also like 2008) at 12.21 and a rally through there would be a decent bullish break.
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- Tested and so far held the support levels that provided the top of the range in 2010
- Also held the 76.4% retracement of the last rally from Jan 2011 to the highs in Aug 2011 (0.1250)
- The rising trend line also converges with these supports
- The 2009 correction down was 30%. The move down seen from Aug 2011 was 28%
Overall:
- Gold has held good supports in the $1,550 area
- Gold is showing signs of strength against the DXY Index and the equally weighted basket of G10 currencies
- Gold looks to now outperform both Bonds (T-Bond) and Stocks (Dow)
- Unless and until we see a weekly close below $1,535, we believe the uptrend in Gold has resumed and a move to $2,400 throughout the course of this year is on the cards.