Gold continues to trade lower, now challenging the 200-day MA

In the last three weeks of trading, gold has moved from its opening price of $1955 on Monday, November 9, to current pricing at $1804.90. In other words, in just 12 trading days gold has lost approximately $150 per ounce in value. Selling momentum has been strengthening with the net decline over the last two days equaling almost $65.

If you recall on November 17 our daily letter spoke about the identification of a variation of a Western technical chart pattern called a death cross. The most common parameters used for this chart pattern are met when the 50-day MA crosses below the 200-day MA. These parameters are typically used in equities however many variations seem to provide extremely valuable information across markets.

The first indication of a potential sharp selloff in gold occurred concurrently with the identification of a death cross as the 50-day MA cross below the 100-day MA. Our article on November 17 began with the following statement; “For the first time since January 2020, the 50-day moving average crossed below the 100-day moving average.  This is commonly referred to as a death cross. Most frequently the term is about when the 50dma crosses below the 200dma. However, it can be used as a term to describe whenever a shorter-term moving average moves below a longer-term one.”

For futures contracts, I prefer to look at the 50 and 100dma, which have provided reliable information and insight when used in conjunction with momentum oscillators such as the MACD, Stochastics, as well as fluctuations in daily volume.

Currently, gold bases the most active December contract is trading down $32.30 and fixed at $1805.60. Today’s intraday low came in at $1797.10 which is just below the current 200-day moving average which is fixed at $1799.60.

Although gold is currently trading just above the critical price point, there is no indication that the selling pressure has subsided and that the market will find support at $1800.

Today gold traded lower based on two fundamental events. The first of which was the announcement yesterday by AstraZeneca that that created a viable vaccine adding to the two that have already completed their stage III trials. The second factor is that indications from the current administration have put out an olive branch promising that there will be an orderly transition of power from one administration to the next.

Besides pressuring gold and silver to lower pricing today’s news fueled a strong rally in U.S. equities taking the Dow Jones industrial average to an all-time new record high above 30,000. As of 4:00 PM EST, the Dow is currently trading at 30,045.91 points. This is truly a milestone. It only took an increase of 1.54% to take the Dow high enough to close above 30,000.

Based on our technical studies the key and critical level of support that must be held if the selling pressure in gold is to subside is $1800 (a key psychological level), and concurrently $1799 which represents the current fix on the 200-day moving average. However if gold does break below this key level our studies indicate that the next level of support will not be found until $1767.40 which represents a 50% retracement from the rally which began in March when gold traded as low as $1450, to the new price high at $2088 that was hit in August.

While we continue to remain bearish for the short-term and believe that gold will trade sideways with a bias to the downside. On a longer-term basis, we believe that even after the pandemic has run its course the economic fallout resulting from the massive expenditures swelling the current budget deficit will potentially create support that could pivot gold to higher ground. However, we believe that if that does occur it will not be until the second quarter of 2021.

Wishing you as always, good trading and good health,