It is often misunderstood as to why the gold price is important. In itself, it is not so important, as it has no real industrial use, however as a gauge of sentiment, it is a very emotional commodity.

The main economic reasons for its existence are:

• As an alternative store of wealth;
• As a hedge against inflation and;
• Jewellery.

All the above three reasons are “emotionally charged”. The first two are “emotional” because they are fear related, and the third one is emotional because you buy an item to express your affection for another person.

From last week’s fall in the gold price, we can deduce the following possible conclusions:

1. The US, according to the gold sellers, is recovering;
2. Inflation is globally not a concern for the foreseeable future; and
3. With improving economic conditions, the US Fed’s Quantitative Easing could begin to be tapered down.

Readers may note that the release of last week’s US Non-Farm Payrolls showed that the US only created 88,000 jobs for the month of March 2013. This was significantly below the average median forecast by economists of 190,000.

This shock number revitalised gold’s demand as the points above were reconsidered. Namely, the economy is not recovering so quickly, inflation could still be a concern and the QE is to continue for a little longer.

Technically, I have three bullish Indicators to six bearish ones. We should also note the following two points that are neither bearish nor bullish:

1. $1,636 is a level now to test on the upside before confidence may be returned.
2. The 200-day moving average is now flat. This has been flat since about October 2012. In six months, it has gone nowhere.

Gold is very hard to predict at the moment but well worth observing as always for a “heads up” on sentiment. If you believe sentiment is important, then you can’t go past gold price movements to tell us a story.

Gold is due for a bounce back up before larger falls may be expected.

Bullish indicators

1. Several levels of support exist between $1,546 to $1,522. We have bounced off $1,540.
2. $1,522 is very important as a level for gold not to fall below. It has not gone past there.
3. The 200-day moving average has still been rising slightly since December 2012 despite the price falls. This is due to the price rises previously.

Bearish Indicators

1. The bad level = B on the chart $1,658 was breached on 20 December 2012, then 4 January 2013 and then again 11 February 2013. $1,658 was tested and re-tested before the falls we saw last week, warning that gold was weakening.
2. $1,754 was an important upside test level, this failed on 26 November, the high reached was $1,752, and since that day, has not had a higher level reached, tracking downwards for the next five months.
3. An important level of $1,558 was breached on 3 April 2013, which then saw the price drop quickly to $1,540.90. This has opened up the downside risk to gold falling further.
4. Falls below $1,522 will see gold open up the possibility of falling to $1,495, and then $1,464, i.e. up to 7.8% lower.
5. The ugly level is $1,290 and a possibility on a technical basis should the gold price start to fall and breach $1,558.
6. The ultimate target of $2,085 has been removed for now, as have targets two and three.

Please note that my views are not for the Long Term. My method results in views expressed that relate to an outlook that lasts weeks or at most months. For example, my view on Shanghai’s Index has for now been met and completed since 22 March 2012, 11 days later. Currently in regards to Shanghai, I am in a cautionary observant position. Your utilisation of this information needs to take into account the time frame I set. The stocks recommended as “Steady as She Goes” may be held for the longer term, which means months.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.