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Gold Plummets as Global Equities Markets Surge

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Strong equity performance globally resulted in a major selloff in gold. The global rally in equities began last night in China. The underlying factor was action by China’s central bank. The People’s Bank of China (PBC) added huge amounts of capital last night through open market operations in attempts to offset the lack of confidence because of the coronavirus outbreak.

According to Yahoo finance, “The remarks were published on the official WeChat account of the People's Bank of China (PBOC) after it injected a total of 1.7 trillion yuan ($242.74 billion) via reverse repos on Monday and Tuesday.”

Fears about the coronavirus epidemic resulted in both Chinese equities and commodities selling off aggressively on Monday. In that short period of time those fears eradicated roughly $393 billion in the Chinese stock market capitalization.

The result was a rally in Chinese equities which spilled over into the European stock market, and then into US equities. The Dow Jones Industrial Average gained over 400 points in trading today, and as of 4:22 PM EST is currently fixed at 28,807.63.

Obviously, this global rally in equities created an extremely strong-risk on market sentiment, which in turn put tremendous selling pressure on the safe haven asset class, with gold having the greatest percentage drawdown on the day of the precious metals complex.

Gold futures basis the most active April contract is currently at $1557.60, after trading down $24.70, which is a drop of 1.57%. Although dollar strength was a component of today’s selloff, it accounted for only a small percentage of today’s total decline. Currently the dollar index is up 0.17% and fixed at 97.79.

Spot gold also sold off sharply, and is currently fixed at $1554.10 after factoring in today’s $22.40 decline. On closer inspection we can see that that selloff was a direct result of traders bidding the precious yellow metal lower which accounted for $20.50 of today’s decline. The remaining decline of $1.90 is a direct result of dollar strength, this according to the Kitco Gold Index (KGX).

Unlike yesterday’s lower pricing in gold, today’s sharp decline definitively caused technical chart damage. The support trendline we have been looking at which is based upon the low achieved mid-January at $1536, and drawing a line from there based upon a series of higher lows. Today gold prices broke below that trendline indicating the potential for further declines in gold.

Our technical studies indicate that the first level of support does not occur until $1530, which is a 50% retracement of the rally which took gold pricing as high as $1613. Below that price point is major support at $1511.50, which is at the 61.8% Fibonacci retracement level.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer