Gold has begun the New Year with a bang. Spot prices ($1,300/ounce) in the global market are up by 10 per cent this month.

While expectation of a delay in interest rate hike from the US limited the downside, the recent rally in the yellow metal was triggered by the Swiss National Bank’s unexpected move to remove the cap on the franc.

This jolted global financial markets and triggered a strong sell-off in risky assets which helped gold regain its haven status. Gold prices are up some 6 per cent over last week.

Trend reversal On the charts, the price action since November 2014 suggests that gold price may have found a bottom. There is a strong and a key long-term trend line support for gold at $1,150.

This level was broken in November 2014 when Swiss citizens voted against a proposal to increase gold reserves with the central bank. However, the fall below $1,150 was short-lived, and gold recovered smartly thereafter.

While gold hovered around the support level of $1,150 for more than a month, it did not record a close on a weekly basis below this level, indicating strong buying interest at this level.

The price action between November and December suggests that a strong base has been formed around $1,150 levels. Gold breaching its 200-day moving average resistance at $1,252 decisively last week, only reinforces the bullish momentum.

Data from the US Commodity Futures Trading Commission (CFTC) show that the number of non-commercial short positions has come down from 121,225 in November last year to 62,733 as of January 13.

The number of long positions, on the other hand, has increased from 177,268 to 192,959 over the same period.

The key resistance to watch now will be $1,324. A strong break and a monthly close above this level will confirm the trend reversal. Such a break will pave way for a rally to $1,400 and even $1,450 in the coming months.

Key Event The outcome of the European Central Bank’s (ECB) meeting on Thursday will decide whether gold will breach the hurdle at $1,324 or not.

According to Bloomberg reports, economists expect a €550-billion bond purchase programme. If ECB President Mario Draghi meets or exceeds market expectation, then the rally in gold will gain momentum.

On the other hand, if ECB fails to meet the market expectation, then the rally can lose steam. This is because, the euro will become stronger and will take some sheen off gold’s haven status. In such a scenario, gold price can reverse to $1,250 or $1,200.

The second event that could play a spoil sport to gold’s rally, is the beginning of the interest rate hike in the US. This is, however, not an immediate risk as is evident from the US Federal Reserve’s cautious approach at its earlier meeting.

Also, if gold price rallies to $1,400 or $1,450 before this, then a break below $1,150 is unlikely even if the Fed hikes rate. The US Federal Reserve’s next meeting is scheduled for on January 28.

If the ECB announces a QE on Thursday and gold closes above $1,324 this month, then gold price has already seen a bottom near $1,150.

Only a close below $1,150 can turn the outlook bearish for the yellow metal.

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