Friday rally sets up gold price breakout

Gold futures have now rallied more than 18% from the intra-day low of $1,182.60 an ounce on hit on June 28.

Gold’s fight back from multi-year lows comes on the back of:

• Strong physical demand from Asia and around the globe – according to a World Gold Council physical gold buying increased more than 50% in the second quarter.
• Dithering by the US Federal Reserve over the timing of the winding down of its stimulus program – as long the the $85 billion a month in easy money continues to pour into markets it boosts gold and hurts the dollar.
• The end of the great gold-backed ETF liquidation –  Standard Bank in its daily research note, puts it this way:

It’s perhaps worth highlighting that part of gold’s relative strength of late, and indeed its recent stability has been a lack of activity in ETF holdings. The wave of ETF liquidation seen throughout Q1 and Q2 has come to a halt since mid-August, taking an important source of selling pressure out of the market, while participants have yet to pile back in either as they wait to see how the issue of Fed tapering and indeed the general economic picture unfolds.

• Technical indicators are finely poised with the gold price honing in on its 100-day moving average – a sustained breakout above this level and $1,500 is not out of the question.