Market report: One bullish technical analyst

Nov 29, 2013·Alasdair Macleod

Last week I drew attention to the ubiquity of technical analysts chasing gold's downtrend in paper markets while blind to the extraordinary events in the physical market. As of this week this is no longer true, with one bank breaking the ranks and coming out with a bullish technical note.

On Tuesday, Citibank's Citifx Technical Team broke ranks with a bullish note saying that Monday saw a one-day reversal with a target of $1335. It's worth looking at what constitutes a one-day reversal, since it could be a significant event.

At 0600GMT on Monday morning a seller of 1,500 contracts pushed the price down $11 to $1226.7, forcing a trading halt for 20 seconds. This appeared to be a deliberate attempt to drive gold down to the $1200 level and beyond by taking out all the stop-loss orders in the market at a quiet time and is a repetition of tactics employed on several previous occasions.

This time it didn't work and after the trading halt the price stayed above $1230 before closing strongly up on the day at over $1250. This is a text-book one-day reversal as the Citi analysts pointed out, because all the elements were in place: a failed attempt by the bears to drive the price lower when they strongly believed they controlled the price, thwarted by solid buying.

Less certain perhaps is Citi's target for gold at $1335, if only because it is in the unknowable future. It is certainly possible, but a rally over $1300 would probably trigger a major bear squeeze, making this target easily achievable.

In other news, gold deliveries on the Shanghai Gold Exchange appear to be picking up again, and net exports for October from Hong Kong hit an all-time high of 131 tonnes (the breakdown of these figures will be available in mid-December). There is a sense that positive seasonal factors are likely to generate higher physical demand from Asia, which fails to recognise the fact that at these low prices it is likely to increase anyway.

Next week

On Thursday both the Bank of England and the ECB are due to make interest rate announcements, which are not expected to change. However, Mario Draghi will be holding a press conference at 1.30pm GMT, which may clarify further the ECB's reasons for its recent rate cut.

Eurozone: Manufacturing PMI.
UK: CIPS/Markit Manufacturing PMI.
US: Manufacturing PMI, Construction Spending, ISM Manufacturing.

Eurozone: PPI.
US: IBD Consumer Optimism, Vehicle Sales.

Eurozone: Composite PMI, Services PMI, GDP (2nd est.), Retail Trade.
US: ADP Employment Survey, Trade Balance, ISM Non-Manufacturing, New Homes Sales

UK: BoE Base Rate
Eurozone: ECB Interest Rate.
US: Initial Claims, Factory Orders.

Japan: Leading Indicator.
US: Core PCE Price Index, Non-Farm Payrolls, Personal Income, Personal Spending, Unemployment, Consumer Credit.