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David Becker

Gold prices moved higher on Thursday the first trading day of the new year, despite the dollar index moving higher. US yields edged lower, following news that the People’s Bank of China announced a 50-basis points reduction in its reserve requirement basically reducing bank lending rates.

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Technical Analysis

Gold prices moved higher pushing through the November highs at 1,516, which is now seen as short-term support. Additional support is seen near the 10-day moving average at 1,500. Support below that level is seen near the 50-day moving average at 1,479. Target resistance is seen near the late September highs at 1,535. The 10-day moving average recently crossed above the 50-day moving average which shows that a short term up trend is now in place. Short term momentum has slowed and now has a neutral trajectory after generating a buy signal and a sell signal. The fast stochastic is printing a reading of 95, well above the overbought trigger level of 80, which could foreshadow a correction.

 

The RSI (relative strength index) is now printing a reading of 77, rising from 75 which reflects accelerating positive momentum. The RSI is above the overbought trigger level of 70, and also points to a potential future correction. Medium-term momentum is positive as the MACD histogram prints in the black with an upward sloping trajectory which points to higher prices.

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China Eases Reserve Requirements

The People’s Bank of China  reported a 50 basis point cut in the required reserve ratio for bank effective Monday, January 6.  The change in reserve requirement will release an estimated 800 in Chinese yuan and reduce banks’ funding costs, which in turn is expected to be passed on to corporate borrowers.  This suggests the benchmark one-year Loan Prime Rate will likely fall.  The required reserves ratios are set currently at 13% for large banks and 11% for smaller banks.

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