A very sharp bullish trend is difficult to maintain. Price action since the middle of March has not had any significant pullbacks. The recent rally from $1,380 to the all-time high of $1,576.70 already retraced beyond the 23.6% fibonacci retracement and could target the 38.2% level at $1,501.70. Gold bulls will see corrections before strong advances return. In the previous two major rallies, gold witnessed pullbacks that tested the fibonacci retracements of 38.2% and 50% before resuming the longer term bullish trend. Possible levels to reenter long positions include $1,501 and $1,478.

Currently the fundamentals still support higher prices for gold. The global economy is still concerned about inflation. Diversification away from the dollar is still a valid concern due to the ultra-loose monetary policy by the Federal Reserve. Despite George Soros's fund management company and Kazakhstan's reduction in gold holdings, most central banks and large wealth management companies are still adding to their positions. Mexico, Russia and Thailand added $6billion worth of gold to their reserves in the first quarter.

The selloff in commodities is also reflected in the commodity currencies. Early in New York, the AUD/USD is 95 points lower to 1.0748, and the NZD/USD is 103 lower to .7880 and the USD/CAD is 69 points higher to .9595.

Edward J. Moya
Market Strategist, FX Solutions

FX Solutions

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(Chart courtesy of FX Solutions' FX AccuCharts. Price on 1st pane, Slow Stochastics on 2nd pane; uptrend lines in green; downtrend lines in red; horizontal support/resistance lines in yellow; 200-period simple moving average in light blue.)