Well the week opened 14th May 2012 with gold at $1586 and closing at $1590. A 4 dollar change you say. Yes, but it belies the fact that gold tumbled to a 4-month low of $1526 Wednesday before charging back up $64 over the tail-end of the week.
When looking at the weekly chart this week’s candlestick comes at the end of a 12-week downswing and has the features of the bull hammer trend reversal indicator. A bull hammer occurs after an index has been declining, possibly suggesting the market is attempting to determine a bottom.
As with any single candlestick, confirmation is required but the fact that price falls much lower than the open and then subsequently closes right back near the opening price reduces the confidence of the bears.
Just look at the chart below and notice how two significant rallies in gold started after the weekly bull hammer candlestick was issued.
In more news that should buoy the bulls, the World Gold Council’s annual report in February indicated that global demand for gold surpassed $200 billion for the first time in 2011 and more recently Marcus Grubb, Managing Director (Investment) at the WGC, said Chinese demand over 2012 is expected to outstrip that of India. Both these countries account for about half of the world’s gold demand combined.
Back in Europe, the euro slid to a 4-month low against the greenback and is expected to remain under pressure as concerns grow about problems facing some periphery euro-zone banks and the prospect of contagion if Greece exits the euro.
IMF chief Christine Lagarde warned of “extremely expensive” consequences if Greece were to leave the euro-zone, a once-taboo possibility that European leaders have begun to discuss openly given the nation’s political crisis.
A weaker euro makes dollar-priced commodities such as gold more costly for euro holder.