Gold at a Critical Support Level

A combination of selling and dollar strength continues to weigh heavily on gold pricing. Recent price declines beginning on April 16 have resulted in gold losing almost $50 in value. After trading to an intraday high of $1,358 per ounce, in just nine trading days gold hit its lowest trading point since March 1 of this year.

While selling pressure has undoubtedly been a significant component of this recent decline, it is dollar strength that has been the predominant factor taking gold to its current pricing which is at a critical support level. This support level is crucial because of two technical indicators: Fibonacci retracement and the 200-day moving average.

Gold is currently trading at $1,305 50, after trading to an intraday low this morning of $1,302.30. Currently, gold pricing is just above its 200-day moving average which is fixed at $1,304.80. The last time gold traded below the 200-day moving average was on December 19 of last year. An extended move below this average would signal that, on a technical basis, gold had shifted from a bullish to a bearish demeanor.

The 200-day Moving Average and the 50% Retracement

The second technical indicator is the Fibonacci retracement. This retracement looks at the price seen in the lows of December 2017 and the highest price point gold traded to this year which is $1,369. The 50% retracement of that move occurs at $1,304; the same price point that is the current 200-day moving average.

Gold is trading just above its 200-day moving average, and the 50% Fibonacci retracement is exceptionally significant as pricing is at a critical intersection.

If gold pricing effectively trades below this level, on a closing basis for an extended period of time, it would signal a major shift in gold pricing and market sentiment.

There’s only one more acceptable price point that gold could trade to on a technical basis that would not negate the rally that occurred at the beginning of last year that resulted in a $140 price increase at the .618% retracement.

Many technicians consider the .618% retracement as a line in the sand as an acceptable retracement following a dynamic upside rally. Therefore, whether or not gold prices remain above its 200-day moving average as well as the 50% retracement is extremely important, because it could clarify whether or not current pricing is an opportunity by the lows or a price point that indicated further dramatic price declines.

Wishing you as always, good trading,