February gold futures have backed down from Monday’s high of $916.30 an ounce, which did mark a fresh three-month high. Profit-taking pressure has been featured since Monday’s high, but no chart damage has been inflicted and prices are still in a three-month-old uptrend on the daily bar chart. In an important recent development, gold prices and the value of the U.S. dollar have become disconnected. In recent months, gold prices and the U.S. dollar index had traded in a close inverse relationship. However, the past couple weeks have seen gold prices produce solid daily rallies despite the greenback showing strength on those days. The disconnection of gold and the U.S. dollar can be construed as overall bullish for the precious yellow metal.
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While the gold market bulls still have some upside near-term technical momentum, a weekly low close on Friday would be technically bearish and would begin to hint that a near-term market top is in place. Psychological resistance for February gold futures is located at $900.00. Above that lies strong technical resistance at this week’s high of $916.30. Above that lies strong technical resistance at the October 2008 high of $938.80. On the downside, technical support for February gold futures is located at Thursday’s low of $874.30, at $866.00 and then at $850.00. Strong technical support in February gold is located at $840.00. A close below $840.00 would begin to produce some significant near-term technical damage to better suggest a near-term market top is in place.–Stay tuned!–Jim Wyckoff