Gold Continues to be Range Bound as Equities Trade to New Record Highs

The precious metals complex is trading fractionally lower today as U.S. equities continue to rise. Given that US equities are only fractionally higher gold, silver and platinum are all trading fractionally lower. This all-in light of dollar strength providing some headwinds to any potential gain.

As of 3:30 PM EST gold futures are currently trading down $0.70 (-0.05%), with the most active February contract currently fixed at $1479.80. Palladium futures are down $43.80 which is a decline of 2.23% and fixed at $1919.80. Silver is off by about 4/10 %, currently trading at $17.05, and platinum is off by $1.80, and fixed at $929.50.

Gold continues to struggle and has been trading in a tight and narrow range. Since November 4, gold futures have been unable to trade above the 50-day moving average. Most importantly, since December 3 the precious yellow metal has traded above that average on four occasions. But those four attempts resulted in gold closing below the average. The last two trading days resulted in two of those attempts, where gold was unsuccessful in closing above this key indicator of short-term trend. Add to that decreasing daily volume as we approach the holiday season.

MarketWatch spoke to Chintan Karnani, chief market analyst at Insignia Consultants where he said, “Despite the modest moves Tuesday, overall the trend in gold, silver, copper, and the U.S. dollar index around Christmas and New Year’s Day “should be taken seriously. Lack of trading volumes or thin-markets reasoning can cause short term trading losses and short-term investment losses.”

He also warned that “If gold does not break $1,500 this week, then there will be profit booking on long positions.”

On a technical basis the compressed range which contains a series of lower highs, and higher lows since September 3 when gold reached this year’s high of $1565 has created a bullish flag or pennant formation.

According to Investopedia “Bullish flag formations are found in stocks with strong uptrends. They are called bull flags because the pattern resembles a flag on a pole. The pole is the result of a vertical rise in a stock and the flag results from a period of consolidation. The flag can be a horizontal rectangle, but is also often angled down away from the prevailing trend. Another variant is called a bullish pennant, in which the consolidation takes the form of a symmetrical triangle. The shape of the flag is not as important as the underlying psychology behind the pattern.”

The basis to this pattern is that as the range compresses energy builds until it reaches the apex of the pennant, at which time it will break strongly to the prevalent trend direction. In the case of gold this would signal a strong break to the upside.

Wishing you as always, good trading,