In a market that showed limited moves yesterday, gold and silver really stood out. What’s important now is to keep an eye on inflation expectations and it’s important to note that these expectations have been moving progressively higher of late. When you see inflation expectations above that of a certain bond maturity, you get negative ‘real’ yields and it’s this phenomenon that drives gold appreciation. Technically gold broke and closed above the October downtrend yesterday (on the daily chart), while the RSIs are starting to move back towards 70 and thus showing better strength in the price action.
I highlighted this stock recently when it was put on Goldman Sachs’ conviction buy list, and it seems to be performing fairly well, having rallied 29% from its December low. Yesterday the stock printed a higher high and the bulls will be keen to see it break and hold supply at 85 cents. Technically momentum is to the upside, and I would stay long this name until we see signs the trend is ready to roll over.
The triangle consolidation pattern that materialised through most of 2013 still provides a longer-term target of 108; however price action in the short term is looking less positive. The pair traded to a low of 104.54 yesterday, although buyers stepped in as traders looked at trend support drawn from the November low. On the upside, the 61.8% retracement of the 2007 to 2011 sell-off (at 105.50) continues to limit upside, and this could be very telling. Personally I would be closing longs and reverting to the side lines, with a view to initiate new longs on a closing break of 105.50. While this strategy may miss a portion of the move, I want the market to confirm that the bulls are once again in control.
There are ever growing signs that EUR/USD could be starting to see better downside in 2014. Yesterday’s daily candle was highly negative and a daily close below the 1.3650 support level could see a deeper move to 1.3525. Shorts in the pair are preferred at current levels.