Critical Short Term Tests For Gold

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By Rudi Filapek-Vandyck

The spot gold price may retreat further from here. US trading guru Dennis Gartman likes to talk of "the box" to signal critical price points in financial price values. These support points are derived from technical analysis.

Weaker commodity markets and a stronger US dollar have now pushed gold into "the box" (calculated as a 50-62% retracement of the previous advance) and this means that if the metal isn’t able to hold on to its current price level, it is likely to sink all the way to US$600/oz, Gartman believes.

The view seems to concur with the outlook for the metal at Merrill Lynch where a retreat towards US$600/oz is seen as a real possibility. The good news is that Merrill Lynch believes the metal should recover in the second half of this year and quite strongly so, forecasting gold’s spot price may hit US$750/oz by year end.

Gartman is slightly optimistic about gold’s short term prospects. He believes the metal may well be able to hold above its current support levels. He also believes there will be some severe tests in the short term.

Longer term, Gartman is on par with Merrill Lynch: gold should move higher.

Gold futures for immediate delivery are currently trading at around US$615.20.

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