By Patrick MontesDeOca

What I would like to do on this segment is to take a micro look at what could be the beginning of a Historical move in the Gold market. In order to do that we’re going to use some basic principles of technical analysis on the chart below representing the August gold futures prices.

In looking at the chart, we can clearly see the market made short of a spectacular daily and weekly bullish reversal by closing at 1.6221 up $57.9 dollars for the day.

(click to enlarge)

This reversal is of a significant nature technically because it made a low of 1.5455 earlier. This put into motion the bearish confidence that the market was headed down to test the previous lows made on 5/30/2012 at 1.5321 dollars per ounce. Instead what the bears experienced was a massive wave of buyers that were able to take all the bids and demonstrated that the market price had reach its economic balance were more buyers took out the selling pressure resulting in this move up to close more than $76 dollars from the low of the day.

MOVING AVERAGES

Additionally, the price went through some major Short-Term (9MA – 1.5727), Inter-Mediate (18MA – 1.5763) and Long-Term (40MA – 1.6182) moving averages. These are momentum indicators that help us identify the price change and volatility in relation its trends.

These indicators are signaling us that the technical picture has changed from bearish to bullish and it is aligning its price energy with longer term bullish price prospects.

FIBONACCI RETRACEMENTS

Let’s take a look at how we can project some swing trading patterns by using the classical fundamental formulas of a Fibonacci Retracement.

By taking the highs made of 1.7977 made on February 29, 2012, we can use this price level as the first equation to identify Fibonacci retracement levels. The second is to identify the lows made for the corrective pattern completion. In the chart we can see the low of 1.5292 was made on May 16, 2012.

By using this basic Fibonacci formula we can identify the levels of resistance or corrective swing patterns to be expected as the price begins it price transformation from bearish to bullish trends. Remember, these are only indicators to help you identify market price confirmation and the potential change in market trends.

CORRECTIVE SWING PRICE TARGETS

1. 1.593 – completed 6/01/2012
2. 1.632 – completed 6/01/2012
3. 1.663
4. 1.695

FUNDAMENTALS

Central Banks boost gold holdings yet again!

The latest official Central Bank gold holding figures from the IMF confirm that Central Banks around the world are continuing to buy gold – some in pretty large quantities which should be yet another stabilizing factor for the gold price – and if the trend continues suggests that the CBs will buy even more this year than last – and that’s only the ones which let the world know exactly what their gold reserves are!

The latest figures not only show some substantial gold buying in April, but also a big lift in gold purchases by The Philippines which actually date back to March, but were slow in being notified to the IMF. The Phillipines’ March gold purchases amounted to no less than 1.033 million ounces – 32 tonnes – of the yellow metal – the biggest volume since Mexico bought around 78 tonnes a little over a year ago – and increased the country’s gold reserves by almost 20%.

The Phillippines was not the only laggard in reporting increased gold reserves though. Tiny Sri Lanka raised its reserves by an even greater 39%, but dating back to January, with a rise of 2.177 tonnes to 7.807 tonnes – obviously far less significant in the global picture but yet another indication of the perceived significance of gold in particular in the Asian economies.

The most significant reported gold purchases in April itself included 29.7 tonnes by Turkey (a 14% increase in its reserves, but this is thought to have largely been due to its policy of acceptance of gold as collateral from commercial banks), 2.92 tonnes by Mexico, 2.02 tonnes by Kazakhstan, and 1.4 tonnes by the Ukraine.

The continued buying by Central Banks does continue to indicate an underlying unease about the sovereign debt situation and its impact on the value of some key reserve currencies- not least the dollar and the euro.

CONCLUSION

A weekly close above 1.695 would confirm a bullish breakout putting into place the challenge of testing the previous highs of 1.800 dollars per ounce. A weekly close below 1.592 would negate this analysis and turn the bullish trend to neutral.

Disclosure: I am long PHYS, PSLV, AG, AGQ, GDX.

Additional disclosure: PRECIOUS METALS PRODUCTS TRADING INVOLVES SIGNIFICANT RISK OF LOSS AND IS NOT SUITABLE FOR EVERYONE. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.