Bill O’Neill, managing partner of New Jersey-based LOGIC Advisors, said that asset-diversification demand for gold and other precious metals by jittery investors amid shaky equities markets propelled gold’s rally.

Spot gold hit an intraday peak of $992.55, which marked the highest price since Feb. 24. It was at $989.10 an ounce at 12:07 p.m. EDT (1607 GMT), against $976.60 an ounce late in New York on Wednesday.

U.S. December gold futures were up $10.70 at $989.20 an ounce on the COMEX division of the New York Mercantile Exchange.

Fears that U.S. payrolls data may disappoint sparked a flight to quality among investors on Wednesday. The metal broke out of its previous $930-$960 range as a move through technical resistance above $960 sparked a rally.

VTB Capital analyst Andrey Kryuchenkov said gold’s immediate move had been largely technical, with the dollar offering little support and physical demand weakening as prices rose.

Gold will need to hold its current levels to build a base for further gains, he said. “If we close above $980, we will retest $990, and probably stay in this range,” he said.

The dollar index <.DXY>, which measures the U.S. currency’s performance against a basket of six major currencies, initially softened early on Thursday, boosting interest in gold as an alternative asset and driving prices to fresh highs.

The market was awaiting fresh clues on the economic outlook from Friday’s payrolls numbers. Investors were spooked after a U.S. employment report released on Wednesday showed more private sector job losses than expected.

The data will be closely watched for its impact on the dollar, and its subsequent effect on gold. The metal is set to benefit from renewed demand if the U.S. currency slips further.

STRONG INVESTMENT

“Investment demand for gold is still very strong, and that is going to help drive the price higher over time,” said Helen Henton, head of commodities at Standard Chartered. “We think it’s going to break $1,000 by Q4, mainly driven by a weakening U.S. dollar.”

Silver tracked gold higher to reach its highest level since June at $15.92 an ounce, and was at $15.84, against $15.34 on Wednesday.

It outpaced base metals such as copper, with which silver, as an industrial as well as an investment metal, often moves.

“Silver has fully participated in this (rally) and yet, while base metals have picked up a bit in the last 18 hours, they were definitely on the defensive,” said Stephen Briggs, an analyst at RBS Global Banking & Markets.

“Silver has managed to ignore that, which is interesting.”

Among other precious metals, platinum was at $1,244 an ounce against $1,229, while palladium was at $288.50 against $284.50.

Impala Platinum, the world’s second largest miner of the metal, said on Thursday some workers at its operations had returned to work after a strike, but said no wage deal had been reached with the union.

Sept 3 (Reuters)

Gold shares have traded in a large channel since last September. It’s taking both the good and the bad at this stage. On one hand, there are the rising prices of bullion. Gold has moved up to US$930 just this morning. On the other hand, it has suffered from generally choppy share conditions.

The price action of the index illustrates those contrarian forces. The chart is a succession of fast moves in both directions. It’s a rangy market where no clear long-term direction appears.

We’ll see what our indicators think of that…

Between August and November 2007, the index rose by more than 55%. Two other attempts to break above 7,000 level failed. Those historical high points constitute the resistance line of the current trading channel.

The low was posted on April 30 just above 5,100 points, which is support line of the trading channel.

The technical indicators show that mixed signals argue for a further rangy trading price action during the coming weeks. For traders, there’s a lot of potential to pick up some gains.
The 14-day MACD is bullish. This, one of our favourite indicators, fell to a historical low levels at the beginning of May. Then it turned up and then crossed above the 0 line. The underlying index was clearly oversold. It argues for upward momentum in the mid-term.

A moving average crossover agrees. The 10-day MA crossed above the 50-day MA last week. It’s a buy signal for mid-term trend-followers.

The 5-day Stochastic Oscillator, however, respectfully disagrees. But it disagrees on a shorter time-scale. The oscillator says that gold shares have gotten a little hot in the last few days.

The signals may disagree, but the conclusion is clear. There’s money to be made in the medium term according to the charts. But you could perhaps wait for a decent correction before moving in. The next price target is perhaps 5,300 points a 38.2% Fibonacci retracement. Then traders will look to switch back to long positions.

Gabriel Andre
The Daily Reckoning Australia

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Source: How to Trade Gold Shares