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Gold future prices – 20th October 2010

The party finally came to an end last night, as December gold futures closed sharply lower, ending the CME futures trading session with a wide spread down candle which broke below both the 9 and 14 day moving averages at $1334 per ounce on the daily chart. The move lower was triggered by the resurgence in the US dollar, coupled with the news from China that the People’s Bank had raised interest rates by 0.25%, which surprised the markets. The reaction by the commodity markets in particular was somewhat extreme, and was in fact more of a reaction to the surprise of an unscheduled announcement, rather than to the news itself, which whilst interesting, would not normally have caused such a reaction in the US dollar, which also received a boost from Treasury Secretary Geithner who stated that the FED policy of QE2 was not intended as a mechanism with which to devalue the US currency. Whether anyone believes him or not only time will tell, and from the market response this morning, it seems that the status quo has already been reinstated, with the dollar resuming its longer term downwards trend.

From a technical perspective, for a resumption of the bullish trend for gold, we need to see a break and hold above the 9 and 14 day moving averages at the $1359 per ounce region, and once above, then a test of the high of last week at $1385 per ounce which will then signal that the bullish trend for gold has been firmly re-established once again. My forecast for gold remains unchanged as we look towards our short term target of $1450 per ounce which should be achieved by the end of this year.