Technicals | Feb 22 2012
By Rudi Filapek-Vandyck
The latest market update by the highly regarded technical market analysts at Citi provides some interesting points of discussion, such as that the euro is ultimately on its way to USD-parity.
The team at Citi has now officially joined the ever so increasing queue of market experts who believe investors should tread carefully as momentum for equities is increasingly looking shaky. Fact remains, these warnings may have increased throughout February, so far equities have simply ignored them. The team at Citi remains unperturbed, however, and points to this time last year when an interim high in the US market was followed by a correction of 6-7% before upward momentum re-established itself.
Maybe Mark Twain formulated it best when he once upon a time said that history doesn't repeat, but it surely does rhyme?
There's another reason why some caution towards equities seems warranted and that is Citi's technical view on crude oil. The chartists remain big believers in a higher oil price this year and can see scenarios whereby the previous old time high of US$147/bbl will come under threat again this year, with potential for crude oil prices to move even higher.
The stand-out conclusion in the analysts' latest market update however concerns gold. There are plenty of valid arguments around as to why the world's hasn't seen the peak in the price of gold just yet. Citi's technical analysts believe quantitative easing by central banks around the world is here to stay and it is difficult to see how this is not going to benefit the price of gold.
Either central bankers will succeed, say the analysts, and we will see inflation and reflation, of which gold will be a main beneficiary, or we will see continued failure and thus more quantitative easing (effectively printing money) until an inflection point is being reached, just like now in some European countries. This too will benefit gold, argue the analysts.
Citi's team has a target of US$2,400/oz for later this year with potential overshoot possibly as high as US$3,400/oz.
Looking at price charts, the analysts state the present pattern reminds of the consolidation seen into November 2006 before gold surged higher moving from a low of US$559 in October 2006 to US$1,033 less than 18 months later (rally of 85%). They note a similar percentage move off the US$1,522 low would push the price beyond US$2,800 this time around. Gold patterns on weekly price charts suggest the precious metal is slowly breaking out of its trading range.
Citi's analysis received support from the team of technical market analysts at Barclays who equally believe gold is building a base for the next move higher. The target at Barclays at this point in time doesn't reach higher than US$1800-plus, but the fact that Barclays's average price estimate for 2012 sits at US$1875/oz indicates gold is expected to rise much higher.
The team at Barclays suggests investors should watch the US$1752/oz price level carefully. If and when gold breaks confidently above this level, this will indicate the next move higher has started.
Gold closed a few dollars above that level in overnight's session.
Technical limitations
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