Last weekend we pointed out the importance of the week ahead for gold. After a tumultuous start to the week gold found its footing in a big way on Friday and closed the week in impressive fashion:

Click to enlarge


After posting a series of higher lows gold surged above previous support at $1180 on Friday and made a full 50% retracement of its October-November sell-off. The breakout from the pennant targets at least the $1200-$1207 area with the falling 50-day simple moving average coming in just above at $1213.

The weekly chart offers the possibility of a false breakdown below the key $1180 level and the bullish hammer candlestick from the previous week has now been confirmed higher offering the possibility of a further short squeeze which could easily carry price back above $1230:


The proximate causes of Friday's rally in gold were US dollar weakness and a report from Credit Suisse showing that the gold market will enter deficit by 2016 as producers cut capex, resulting in reduced supply in the medium- to long-term. Considering that November is the 2nd most bullish month of the year historically for gold there is a good chance that there is more upside ahead over the near term:

Gold_SeasonalityWe should also note that the last two Fridays have seen huge upside moves in gold on the heaviest trading volumes in more than 18 months. This is an especially bullish sign given that Fridays are generally the days on which large institutions do the majority of their rebalancing, and large upside moves taking place on heavy volume hold much more significance than average or light volume rallies. The $1200-$1207 area should be a cinch with a good possibility of another $30-$40 of upside before price reaches much more significant resistance between $1230-$1250.