Gold Hits Lowest Price Since the Correction Began before Recovering

Gold had a solid performance today following the release of the ISM index (manufacturing) data which contracted from 49.1 in August versus 47.8 in September. Gold futures traded to its lowest price point today when it traded to an intraday low of $1465 before recovering. The net result of this data put significant pressure on U.S. equities and was highly supportive of gold pricing. Continued unrest and protests in Hong Kong have added fuel to the real concern that this geopolitical event is far from over. New sources reported in escalation in violence both from the protesters and the response from the police.

As of 4:45 PM EDT the Dow Jones industrial average lost 1.28%, which is a net decline 343.79 points, taking that average to 26,573.04. The report was also highly supportive of gold prices with December futures currently bid at $1486.50, after factoring in today’s gain of $13.60, which is almost a full percentage point gain on the day.

Spot or physical gold gained $7.60 today and is currently bid at $1479.10. Dollar weakness was definitely providing solid tailwinds which contributed to today’s respectable gains. According to the KGX, (Kitco Gold Index) today’s gains were equally split with dollar weakness contributing $3.80, and market participants bidding the precious metal higher contributing the remaining $3.80.

However, at the same time I am not convinced that today’s move is the beginning of a key reversal, or pivot point. On a technical basis we would need to see gold pricing move back above the 50-day moving average. Yesterday’s sharp decline of almost $30 began by opening right at the 50-day moving average which is currently at $1501.30. Once gold prices broke below that critical support level there was a cascading effect of sellers liquidating long positions as gold futures closed at approximately $1472.

If gold can close solidly back above its 50-day moving average ounce it would be the first real indication that on a technical basis that the correction which began at the beginning of last month had run its course and concluded.

Another key element to watch is the U.S. dollar which gained almost 3.5% during the third quarter of this year, which ended yesterday. Dollar strength has certainly been putting negative pressure on the entire precious metals complex which is paired against dollars and thereby has an inverse correlation.

On a technical basis our studies indicate that gold continues to be in a corrective stage following the remarkable $300 rally which took gold from $1265 in August of last year two $1565 at the beginning of last month.

While this correction has now given back more than .23% of the gains achieved during the last rally, technically it could find support at the current trading levels. Still there is a very realistic probability that gold will hit lows at approximately $1453 per ounce, which is the .38% Fibonacci retracement before finding solid support and returning back to rally mode.

Wishing you as always, good trading,