Gold and silver prices experience strong selling pressure today

Both gold and silver experienced a tremendous price decline in trading today. Gold futures basis the most active December contract lost $78.90, a total decline of 3.92%, and is currently fixed at $1934.20. Silver had a larger percentage gain giving up 4.77% which is a decline of $1.34, with the September futures contract currently fixed at $26.735.

Although a percentage of today’s decline in both gold and silver were directly attributable to dollar strength, the vast majority of today’s drawdown is the result of market participants and traders selling both precious metals taking them lower.

Spot or physical gold lost 3.68%, which is a decline of $73.63 and is currently fixed at $1928.30. We can see the two components which took gold lower today by viewing the KGX (Kitco Gold Index). The screen-print in this article was taken at 16:59 EDT when spot gold was fixed at $1727.90, indicating a drawdown today of $72.40. On closer inspection we can see that $56.80 was the result of traders liquidating or selling positions, with the remaining drawdown of $15.60 a direct result of dollar strength.

The release of last month’s minutes from the Federal Reserve’s FOMC meeting indicated that the Fed members did not see the benefits of implementing a so-called yield curve control which meant that it was highly unlikely that the Federal Reserve would Interest rates in the near future. Fed members told central-bank officials in late July that they were lowering their estimates for economic growth over the second half of the year.

As today’s minutes were released and analyzed the information was viewed this highly supportive of the US dollar, taking the dollar index higher by +0.83%. However considering that gold futures gave up 3.92%, simple math reveals that a little over 3% of today’s decline was directly attributable to selling pressure.

As reported by Neils Christiansen, editor of Kitco News, Adam Button, chief currency strategist at ForexLive said, ““The gold market clearly wants to see yield curve control,” said Adam Button, chief currency strategist at Forexlive.com. “I think this selling is a little over done but clearly the markets have a gun to the Fed ’s head. They don’t want to hear anything but printing presses. Although gold has dropped sharply Wednesday, he does not think the minutes are a game changer for the precious metals market. He cited that time and time again the Federal Reserve has shown it will do whatever it takes to support the U.S. economy.

On a technical basis it seems clear that after hitting the new all-time record high at $2088, traders perceived a market which was temporarily overbought and began to sell into current pricing. The first leg of this correction took pricing to $1875 before recovering, completing the first “A” wave of an A, B, C correction. Typically the be wave is a counter wave which moves in the opposite direction of the current trend and will typically regain 50% to 75% of the price decline during “A” wave. Gold traded as high as $2025 before ending the “B” wave and on Friday entered the final “C” which when concluded will complete the correction.

Our studies indicate that selling pressure could continue and the most logical price points to look at for support are $1875, or $1846. The first number is derived from what is labeled as a flat ABC correction, which means that the low of the “A” wave is equal to the low of the “C” wave. The latter number of $18 $46 was derived from the 38% Fibonacci retracement of the entire major leg of the rally which began at $1450 and concluded at $2088.

While it is very possible that we will see more downside in gold, it is also highly likely that once concluded we will enter a final fifth wave which will take gold pricing to a new all-time record high.

Wishing as always, good trading,