Gold gains modestly but closes lower, and trades below critical resistance

Since February 5 when gold hit its lowest trading point since January 23, the key difference was that last Wednesdays low was followed by a green candle. Now, for the fourth consecutive day gold has traded with consistent higher highs, and consistent higher lows. There is however a huge caveat to the most recent action in gold pricing; It has not been able to close effectively above its resistance trend line. A line which was created from a support trendline lining up the higher lows as the market gained value from the second week in January, up until February 3.

The chart above is a simple daily candlestick chart enlarged to show this trendline both as a support and a resistance indicator. Exactly one week ago today gold prices opened above $1580 per ounce, broke through the existing support line, and closed at $1555 per ounce. Last Tuesday as we said it did make a lower low but quickly recovered gaining ground on the day.

What has been a primary underlying reason for the recent rise in gold pricing has been genuine concern the outbreak of the coronavirus in China that will continue to spread around the world before it is contained.

As reported by the New York Times today, “The new coronavirus has sickened more than 40,000 people and killed more than 900 people in China. Hardest hit are the residents of the outbreak’s epicenter, Wuhan, and the surrounding province of Hubei. Hospitals are overwhelmed and medical supplies are scarce, leading to delays in treatment for thousands of people.”

One positive development on the front for eradicating this deadly virus is that recently one pharmaceutical company has created a test which will confirm or deny whether or not an individual has contracted the virus regardless if he or she is showing symptoms. The issue is ramping up production to get this test to major testing areas in hospitals. In a show of solidarity President Xi Jining, who has been absent from public view since the outbreak, toured several public places in Beijing today.

Although the timeline for when science is able to produce an effective treatment, or more importantly a vaccine is an unknown factor since this is the first time this particular virus has been identified. While it is less deadly than SARS in terms of survival rates, that fact has been working against the spreading of the virus, and at 910 the deaths have exceeded those from the SARS outbreak. During the two-week incubation period, infected individuals can transmit the virus without exhibiting any symptoms.

Although the U.S. stock market has pretty much sidestepped this issue and it has been bullish for the safe haven assets such as gold and the dollar over the last week. We would expect to see gold continue to rise as long as this crisis remains a danger to the global public at large.

Wishing you as always, good trading,