The rally in Gold continues to outperform despite equity markets recovering from declines in Jan/Feb. With the ECB decision due on Thursday, Gold could remain range bound in anticipation of further QE announcement.

The precious metals continue to perform strongly in a rally that clearly looks overextended and despite the equity markets regaining the lost ground, Gold has remained resilient. Trying to catch a top in these strong trends is likely to be a risky bet at least for Gold. Last week, Gold prices gained 3.06% posting a 13-month high to $1279.65 while Silver gained 5.57% completely reversing the previous week’s declines. Silver, however, has failed to post new highs indicative of losing exhaustion or at the very least another pullback lower.

Both the metals rallied strongly despite last Friday’s Nonfarm payrolls posting a higher than forecasted jobs print. However, given the mixed nature of the report and the fact that futures markets are pricing in no rate hike in March, Gold remains well supported at this juncture. In anticipation of the ECB’s monetary policy meeting tomorrow and mounting expectations of further monetary policy easing, Gold prices could remain strong with a bias to the upside remaining. Expanding more QE could be positive for Gold, at least in terms of the Euro.

Earlier this week, Goldman Sachs released a note stating that the commodity rally is likely to fizzle sooner than later giving a short term target for Gold at $1100, recommending to short gold.

Gold – Technical Outlook

Following the doji candlestick pattern on the week of 21st February, we expected to see a move to the downside if prices broke below the doji’s low at 1202, which didn’t happen. The resumption of the upside momentum saw prices briefly testing the 1275 – 1284 resistance level which we noted. A firm test (closing prices) near this resistance level could be an initial indication that a correction is likely to happen in the near term, but one which needs to be substantiated with further candlestick patterns.