Gold Does Not Break Below 1200, but with a Big Caveat

In light trading overseas gold prices continue to trade under pressure to a new low at $1204, before recovering slightly to approximately $1213. At least for the short term, it appears gold prices are attempting to hold $1200 as a baseline in the sand and technical support.

However, that does break a trend that has been present throughout 2017 in which each successive low was higher than the low that came before it. A bullish model, for the most part, is created when price action trades in that way - with a series of higher highs and higher lows.

The first low of 2017 occurred at the end of January. Gold prices climbed dramatically from December’s lows at $1120 to $1220, after which prices fell to $1180. The second low of 2017 occurred in mid-March of this year when gold fell at $1208 an ounce, followed by the third low occurring the first week of May at $1214.

Throughout 2017 gold prices could be characterized as a series of higher highs during the rally stages and higher lows during corrective periods. That changed with this most recent low achieved in yesterday’s trading, when the market broke below the previous low of $1214 and traded to a lower low at $1204. This marks the first time in which the low achieved during a corrective period is below the prior low.

This marks, at least for the short term, a shift in market sentiment. Recent price pressure has been a direct result of many fundamental changes in the economic environment. Strong economic data, both in the United States and the European Union, have signaled a return to a robust economy recovering from the deep recession which began in 2008.

This recovery has dynamically changed the tone and policies of both the Federal Reserve and the European Central Banks, signaling an end to their aggressive monetary stimulus programs. The net result has been a more hawkish tone, both here and in Europe, as the central banks begin to unwind their quantitative easing programs which have been in place for the last nine years.

Starting last year, for the first time the Federal Reserve began to raise interest rates since the initiation of their quantitative easing program. This year the Fed has already implemented many small interest rate hikes and initiated the process of liquidating the massive $4.5 trillion balance sheet to return to normalization.

This change in central bank policy has altered market sentiment, and the net result on a technical basis can be seen in this most recent low at $1204, which for the first time in 2017 was a lower low than the previous low.

Wishing you as always, good trading,