Is Gold Forming a Base At $1300?

Recent price action in gold suggests that the precious yellow metal might be forming a base at just above $1300 per ounce. The most recent rally, which began in mid-December, took pricing from $1238 to $1327 before finding resistance. Since Friday of last week, gold has been trading in a narrow and defined range with intraday lows coming in above $1305 and intraday highs falling below $1324.

When found following a dynamic rally or strong correction, this type of price action can indicate a period of consolidation before price action breaks in the direction of the prevailing trend.

For the first time in the last four trading days, gold prices will close higher on the day when compared to the previous days close and today’s open. Today’s intraday low of $1308 matches yesterday’s low, and today’s intraday high exceeds the highs achieved on last Thursday. In fact, today’s high took pricing to a four-month high before backsliding slightly towards the close of the day.

As of 3:40 PM Eastern standard time, gold futures are currently fixed at $1318.90, which is a net gain of $5.20 (+.40%) on the day. Today’s move can be partially attributed to weakness in the U.S. dollar.

Spot gold is currently fixed at $1317.70, which is a net gain of $5.10 on the day. According to the Kitco Gold Index, this gain is composed roughly of two parts buying (+$1.90) and three parts (+$3.15) dollar weakness.

Falling yields in bonds added to the safe haven demand. As reported in Bloomberg News today, China is considering slowing or halting their purchase of U.S. treasuries. China currently has roughly $3.1 trillion in U.S. Treasuries. As China is the world’s largest foreign holder of U.S. Treasuries, a reduction in purchasing would dramatically impact current pricing.

“Senior government officials in Beijing reviewing the nation’s foreign-exchange holdings have recommended slowing or halting purchases of U.S. Treasuries, according to people familiar with the matter. The news comes as global debt markets were already selling off amid signs that central banks are starting to step back after years of bond-buying stimulus. Yields on 10-year Treasuries rose for a fifth day, touching the highest since March.”

Obviously, any dramatic change by China in their purchase of U.S. Treasuries would have an impact on multiple markets globally. A reduction or halting of purchases of U.S. Treasuries by China would be a bullish outside influence on gold.

Wishing you as always, good trading,