Commodities | Mar 28 2007
By Rudi Filapek-Vandyck
Spot gold surged to US$666.50/oz in yesterday’s trade, but only for a brief moment, as rumours spread across financial markets that Iran had opened fire on a US navy vessel. The same rumour pushed crude oil for delivery in May temporarily up to US$68/per barrel.
To some investors gold is simply on its way up to US$690/oz where significant technical resistance is waiting to stall the precious metal’s long awaited break of the US$700/oz barrier.
This is not how highly regarded US based market commentator Dennis Gartman views it. Throughout his long spanning career, Gartman has learnt to recognise what he calls “the box” and as explained over and over again in his daily newsletters, above everything he has learnt to respect “the box” wherever it appears.
Gartman’s “the box” is shaped by the 50-62% retracement level from an asset’s previous peak. Following on from the metal’s price peak in February at US$687/oz, Gartman reported on Friday the metal has now landed into “the box”. If gold manages to break above US$666/oz, effectively the lid of the box, this should be interpreted as a bullish signal, Gartman’s experience has taught him.
The same experience tells him, however, that a sudden spike and retracement as happened yesterday doesn’t count. The move outside the box has to show strength instead of impulsiveness.
In the words of Gartman: “Should spot gold trade US$666.50 …, and should spot gold
remain above that level for an hour or so, proving that its breaking was not a short term, one-off fluke, we’ll return to the gold market as buyers. Likely that shall require that the EUR trade upward through 1.3350, given the long standing linkage between the US dollar and gold.”
Precious metals specialists at Belgo-Dutch financial institution suggested recently gold was likely to ultimately break through US$700/oz this year, but the metal’s upside after that would be limited.
However, Deutsche Bank analysts’ latest update suggests otherwise. According to Deutsche Bank’s forecasts gold should gradually appreciate in price over the coming quarters with the analysts’ average price forecasts rising from US$660/oz in the second quarter to US$670/oz in the third to finally US$700/oz in this year’s December quarter.
If Deutsche Bank’s projections prove to be correct, gold should average US$710/oz in the opening quarter of next calendar year. The projected price average for 2008 is US$725/oz versus US$670/oz for the current calendar year.
But first there’s technical resistance at US$666/oz. After that even more formidable resistance is waiting at US$690/oz.