Gold futures chart - 15th November 2010

The commodity markets were surprised on Friday, as fundamental news from China signalled a possible rise in interest rates and the potential for a consequent drop in demand for metals, energy and soft commodities in the grains complex, as gold led the way with a steep fall closing the week below the 14 day moving average on the daily chart. The wide spread down candle created, broke below short term support in the $1380 per ounce area and as such now looks set to test the $1360 price region immediately below. Indeed should this fail to hold then we may even see gold pull back to test the deeper platform in the $1343 per ounce region where the 40 day moving average also awaits.

As is often the case with a strong move triggered by a single item of fundamental news, the reaction was as a result of the markets being surprised, and as such we often see a reaction the market reverse relatively quickly and pick up the trend that was in place prior to the news. We see this virtually every month with the Non Farm Payroll release in the forex markets, which move initially in the opposite direction and then settle to continue following the established trend, once the market has settled and absorbed the news. For commodities in general , and gold in particular, I firmly believe that this is the case here, and that during this week we will see commodity prices recover, and continue their upwards momentum in due course, and continue to move higher in the longer term once more. From a technical perspective we need to see a break and hold above the $1420 high of last week, and having regained this price point, then gold futures will continue higher in the longer term as we move towards my target for Q1 next year of $1450 per ounce.