Gold Closes Lower But Remains Above Its 200-Day Moving Average

Now in its third consecutive week of lower pricing, gold prices drifted lower again today. The most active futures contract (August 2017) settled $2.40 lower today to close at $1244.30. But I believe it is the intraday low of gold pricing that warrants the greatest amount of attention. Gold traded to an intraday low of $1242.40. This low corresponds almost precisely to gold’s 200 day moving average, which currently sits at $1242.

This is the second of two key technical price areas that traders need to look at as a potential area for support. The other key technical area to watch is the 61.8% retracement of the most recent rally. The last real rally in gold occurred from the first week of May up until the first week of June, in which gold prices rose roughly $85 as it traded from a low of $1213 to a high of $1298. The 61.8% retracement of this rally is at $1246.10.

Although gold broke below that price point yesterday, it is currently trading in between the 200-day moving average and the 61.8% retracement. Whether gold pricing will find technical support in this area is currently unknown. However, this is a logical place for gold pricing to exhibit a bounce and support.

Historically speaking, gold prices broke above the 200-day moving average at the beginning of 2016 for the first time (of any real-time duration) since the multiyear decline which took gold pricing from its record high above $1900 to $1661, when gold pricing broke below the average. This continued until prices bottomed out at $1040 per ounce at the end of 2015.  Gold effectively held above the 200-day moving average up until the presidential election in November of last year. That occurrence coincided with the single largest volume trading day in history, the day after the presidential election.

Since then, gold prices have moved above the 200-day moving average on two occasions this year, with each occurrence resulting in a rally that concluded at roughly $1300 per ounce.

However, on this last occurrence, a golden cross occurred when the shorter-term 50-day moving average crossed above the 200-day moving average, underlying the strength of this current rally.

The fact of the matter is that financial markets react to real-time events and not to technical numbers and studies. However technical studies distil real-time events into mathematical data, and it is this mathematical data that the technician uses to quantify the activity into numbers to express the probability of an outcome.

Wishing you as always, good trading,