Gold Rallies on Strong Fundamentals

Gold prices have rebounded substantially, on the heels of solid consumer confidence which has driven investors back into precious metals.  Stronger than expected GDP data from the UK along with better than expected jobless claims data, help bouy the yellow metal.

Liquidity throughout the globe will continue to be easy and word that Janet Yellen of the FOMC is the likely candidate to take over from Ben Bernake helped gold bugs boost precious metals prices.  Yellen is know as the most dovish of the Fed governors, and tangible assets will likely perform well with her at the helm.

In economic news, the United Kingdom released first quarter Gross Domestic Product.  Traders had been expecting a flat reading and the surprise of a 0.3% expansion sent gold prices higher.  The UK’s GDP report evidence that the nation avoided a recession.  Output is approximately 3% below the first quarter of 2008 peak, which means the economy has a long was to go to get back to trend growth.

In the US, the Department of Labor released better than expected jobless claims data before the opening bell on Thursday.  Market participants were surprised by the 15K decline in claims which was much better than the flat reading expected by economists.  The better than expected number could be a signal forecasting what the government will release at the end of next week, when they are scheduled to report their non-farm payroll report.

Japanese news that is scheduled to be released on Friday which could have a significant effect on gold prices.  Japan is scheduled to release March CPI which is expected to be -0.8% after -0.7% in February.  The core CPI, which excludes fresh food and energy, is expected to come in at -0.9% in February.  The number will be important to the extent that traders will bid up gold prices on a weaker than expected release.  With the BOJ now targeting 2% as there core inflation figure, the central bank is likely to increase asset purchases on a deflationary number.

Gold futures prices have rebounded and reclaimed the 1425 level would was the high end of a range dating back to the beginning of 2011.  The next level of target resistance on a weekly basis is 1522.

The daily chart (courtesy of Bullion Vault) looks very promising for gold futures prices.  Gold sliced through resistance near the 10-day moving average, and is poised to test the bottom end of the prior range at 1,550.  Support is now seen near 1414.

Momentum on the June futures contract is picked up significantly with the MACD (moving average convergence divergence index) generating a buy signal were the spread (the 12-day moving average minus the 26-day moving average) crossed above the 9-day moving average of the spread.  The index moved from negative territory to positive territory confirming the buy signal.  The RSI (relative strength index) is printing at 44, which is in the bottom portion of the neutral range.

By Marcus Holland, associate editor of Options-Trading.com