Could Gold Be Finding Price Support?

Make no mistake about it; this was a terrible week for those wishing to see gold prices move higher. In fact, gold prices lost almost 3% on the week - one of the most significant weekly drops in over a year. However, the last two trading days have provided an indication that gold pricing might, in fact, be finding some price support.

Our technical studies have indicated that $1,178 is a critical price point for gold futures. This price point is a 0.78% Fibonacci retracement from an extremely long data set. This dataset looks at price action from December 2016 up to current pricing.

Above this price point is the 0.618% Fibonacci retracement which occurs at $1,218 per ounce. Throughout the month of June and the first part of August, gold prices traded right around that price point. It seems as though gold prices were forming a base and attempting to find support before this week’s price decline which occurred on Monday and Wednesday of this week.

During those two days, gold pricing dropped approximately $40 in value and traded to a low of $1,180 in December futures. Thursday’s price action was unique in that, although there was a $21 differential between the high and low of that day, gold prices rebounded sharply, which resulted in closing only a couple of dollars from its opening price.

What was most impressive about the price recovery on Thursday was how dramatically gold pricing rebounded after reaching a low of $1,167 per ounce, before closing at $1,183. Today gold futures are currently trading up by approximately five dollars, and the most active December Comex contract is presently fixed at $1,189.

In fact, physical gold is actually faring better in terms of price gain today. As of 3:30 PM Eastern standard time, spot gold is currently trading up $8.60 and fixed at $1,182.30. The majority of this price increase is directly related to dollar weakness contributing $5.50 of value per ounce. The remaining $3.10 gain is directly attributable to traders bidding up the precious yellow metal.

Declines in gold pricing over the last couple of months have been directly tied to U.S. dollar strength. It is the dollar which is leading gold prices, and not the other way around. Over the last couple of days, the dollar has been losing value, and today is currently trading off by over half a percent at 96.005. It is yesterdays and today’s decline in dollar value that has been instrumental in taking gold prices from the recent lows to higher ground.

Although it is much too early to tell, recent activity could, in fact, be signaling that the dollar has found some real resistance and gold pricing has found substantial support.

Wishing you as always, good trading,