Gold: Trading Within Short Term Bullish Channel

Despite suffering the worst annual decline since '81, 2014 turned out to be extremely bullish for Gold, at least for now that is. Prices started shooting up out of the blue on the first day of 2014 trading without any good reason. Even though bears subsequently did take over, the decline failed to test the post Christmas consolidation range in any significant/meaningful way and bulls quickly take over subsequently, ending Friday close to the weekly high.

Hourly Chart

Early Monday trade this week showed signs of bearishness, but that turned out to be a false dawn for bears with prices climbing up once again, breaking Friday's high and moving towards the 1,250 round figure. Perhaps more importantly, price levels are higher than the consolidation zone found pre FOMC announcement back on 18th Dec. This is a very strong bullish signal and shows that market has climbed out of the QE tapering shadow and may even be immune to future QE Tapers in 2014.

From a technical perspective, price has just recently rebounded off the newly formed Channel's bottom, and is currently aiming for Channel Top. Stochastic readings have reversed and is currently pointing higher and crossing over the Signal Line, potentially invalidating the bearish cycle signal that was formed just a few hours earlier. However, as Stochastic readings are close to the Oversold region, do not expect price to break Channel Top right now which happens to be the confluence with the highs post QE Taper was announced 3 weeks ago. Nonetheless, looking at Stoch levels past 2 trading days which have been staying above 55.0 level, a strong bearish cycle follow-through from the rebound off Channel Top is unlikely, and we should be able to see prices continue a slight upward trajectory within the Channel.

Daily Chart

Daily Chart remains bearish though, and latest bullish venture is heading straight towards the 1,250 - 1,270 resistance band and confluence with Channel Top. Also, Stochastic readings are entering into Overbought territory, and unlike the Short-Term chart, bearish cycle signals on the daily tend to have better follow-through. As such, even though Short-term pressure is pointing up, there is no evidence that gold prices will be up in the long-run, and with trading volume remaining low right now, we could simply be seeing this bullish run as a temporary pullback.

Nonetheless there are hints of shifting sentiments. We've seen buying activities from financial institutions whenever gold prices near 1,200 back in 2013. A recent survey by Bloomberg has reflected stronger bullish sentiments from analysts in a year, suggesting that we could be seeing a longer-term bullish push in 2014. Whether these analysts reflect actual market thinking will need further analysis. A good indicator will be the CFTC COT numbers which shows that speculative long position remain flat, but the numbers are taken before Christmas, and this Friday's numbers will be a much better reflection of current sentiment.

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