Equities Continue to Rally as Gold Continues to Fall

For the second day in a row the Dow Jones Industrial Average has closed above 20,000. Gaining roughly 29 points in today’s trading, the Dow is currently trading at 20,097, a fractional gain on the day. The S&P 500 is trading fractionally lower on the day and the NASDAQ fractionally higher. Although these indexes continue to trade in record territory, today’s gains are marginal at best.

Precious Metals Continue to Trade Under Pressure

For the third consecutive day, gold prices have traded under pressure and closed lower. With the last trading day of the week tomorrow, it seems highly unlikely that gold prices will recover to finish higher on the week. If gold closes lower this week, it will break the current trend of consecutive weekly gains.

Since December 15, 2016, we have seen gold prices consistently gain value, week in and week out. The result was five consecutive weeks in which gold’s weekly range contained a higher low and a higher high when compared to the prior week’s range. This most recent decline can be partially attributed to both US dollar strength as well as selling. The selling pressure evident in gold pricing can be attributed to a strong risk on environment as US equities continue to trade to new record highs.

How Low Can Gold Prices Go?

Our current technical model indicates that this most recent price correction should in fact be short-lived. Based upon Fibonacci retracement of the most recent rally, we see potential support at $1183, $1161 or $1145. These support levels are based upon .382, .618, and .78 percent retracements of the most recent rally in which gold prices moved from $1123 to $1220 per ounce. These studies indicate that even if gold prices experience a deep correction, the lowest value we can expect prices is $1145 per ounce.

As we have spoken about on multiple occasions, the fundamental factors driving markets can be characterized as a moving target, with extreme volatility possible. It is also critically important to realize that at any moment, these market factors could dramatically shift and pivot literally in a blink of an eye; or at least a single Twitter post.

Wishing you as always, good trading,