Gold traded through major resistance at $1,666.5 yesterday – a significant level, because it's where the 200-day moving average hits. It went on to extend itself above retracement levels to reach a high of $1,678.8. This high runs into the resistance trend line from a falling wedge created by the highs and lows in November.
This morning we are seeing the gold market pull back and consolidate above $1,666.5. A close above this level is very important for the bull camp.
So that's the technicals. What else is driving the gold market?
In the face of improving economic conditions globally, the European Central Bank left rates unchanged yesterday, allowing foreign currencies and commodities alike to find a path of least resistance to the north. However, the yen traded to a two-and-a-half-year low, which means gold priced in yen traded to a new all-time high. I believe the pressure we see this morning is a direct result of profit-taking from gold in yen terms.
So what levels am I watching?
On the downside, the key levels to watch are $1,666.5, $1,660 and $1,656 — a close below these levels will be bearish. A reversal will start to build below $1,651.3, but a close below $1,641 will signal a move to $1,600.
On the upside, the line in the sand for gold is $1,680. A move through $1680 will encourage short covering to $1,700, as the downtrend will be broken.