Spot gold prices continue to fall as risk appetite grows and traders seek out assets with higher yields. The commodity is approaching significant technical resistance in the long term trend.
Positive economic data from Europe along with varying data releases from the U.S. has created an environment ripe for risk taking. A rising euro, equity markets, and spot crude oil prices show just how traders are taking on more risk, while shunning safe haven assets. The recent price action of spot gold tells this story well.
Last week's European industrial new orders surprised the market with a 3.8% rise on expectations of a decline of 0.1%.
British preliminary GDP came out stronger than expected, positing a 1.1% gain on expectations of only a rise of 0.6%.
Despite testimony from Fed Chairman Ben Bernanke that signaled an uncertain outlook for the U.S. economy, U.S. equities rose as the Dow Jones Industrials finished up for the week by 3.24%.
All of this positive info can be seen in the declining price action for spot gold.
The weekly chart shows an evening doji star candlestick pattern has formed, a warning that the long term bullish trend is changing. The top occurred at the record high price of spot gold at $1265. Confirmation of the pattern came the next week with the long red candlestick. Supporting the downward move is a doji candlestick that formed the following week after the evening star pattern.
The sharp downward movement in the price broke through the support level of $1224.70 and looks set to continue to head lower to the next support for the commodity which rests at $1169. This is close to the long term bullish trend line that began in October of 2008.
A close below this line would signal a shift in the long term trend to the downside and a target at the 23.6% Fibonacci retracement level at $1118, followed by the 32.8% Fibonacci level at $1026.
Should the downward price action fail to continue, the targets to the upside would be located at the resistance level of $1224, and the all time high for the price of spot gold at $1265.
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