Gold and equities pivot to the upside as the Fed reenacts its funding program

Yesterday U.S. equities had their deepest and most brutal decline since black Monday which occurred on October 19, 1987. At the same time gold opened higher in Australia, and then began to selloff as it traded in New York. It traded to a low of approximately $1450 before recovering back above $1500. The one constant that we have seen rise is the volatility index for both gold and U.S. equities.

The Federal Reserve played a big part in today’s recovery of both gold and U.S. equities. Today they announced that the emergency commercial paper funding program would be used again to provide the liquidity needed for a recovery. The last time this funding program was used was during the 2008 financial crisis.

Today’s recovery in both asset classes was not as strong as yesterday’s decline, however they made up a percentage of yesterday’s drawdown. The Dow Jones Industrial Average gained 1048.46 points in trading today which is a gain of 5.2%. The NASDAQ composite gain 6.23%, while the S&P 500 gained 6% on the day.

Activity in precious metals futures were a mixed bag today with gold and platinum scoring respectable gains, and silver and palladium declining. This in light of dollar strength which resulted in a gain of 1.7% in the dollar index. The index actually had a high today of 100.075, before closing at 99.82.

Gold futures bases the most active April contract closed at $1529.20, with a net gain of $42.90 (+2.87%). Silver futures closed at $12.61 with a net decline of 1.61%. Platinum futures had a fractional gain and are currently fixed at $661.10 (+0.52%). Palladium futures also had a fractional decline of $9.60 currently fixed at $1504.50.

Spot or physical precious metals acted differently with palladium gaining 4.56% on the day, resulting in a $68 gain after factoring in a decline of $22.40 based on dollar strength. The precious white metal closed at $1560. Spot gold is currently fixed at $1528 which is an increase of $18.50 on the day. Today’s pricing is the result of dollar strength amounting to - $22.60, with buyers bidding up the precious yellow metal by $41.10.

After six consecutive days of lower closes gold closed higher on the day with a higher low, but a lower high. Also, the real body of today’s candlestick falls within the middle of yesterday’s strong downside move creating a candlestick pattern called a bullish harami. This pattern is not as strong as other key reversal candlestick pattern such as an engulfing bullish or piercing line, and requires confirmation before one act on the information.

Yesterday’s low of $1450 landed within one dollar of the 38% Fibonacci retracement level. This is a significant level to look for a potential bounce to the upside. The caveat is that if it continues to trade higher it could be a short term move rather than the continuation of the uptrend that challenged $1700 per ounce on the week of March 9^th.

Wishing you as always good trading,

Gary Wagner