Gold Rebounds After Trading Under Dramatic Pressure Last Week

Gold stages an impressive recovery today and, as of 3:30 PM Eastern standard time, is trading up $10.20 (April futures) at $1325.90. This upside spike is truly a combination of both a weaker U.S. dollar along with buyers bidding up the precious yellow metal.

According to the Kitco Gold Index, spot gold is currently fixed at $1323.30, which is a net gain of $7.60 on the day. On closer inspection, it was a weak U.S. dollar which contributed $4.20 of today’s gains, with the remaining $3.40 directly attributable to buying.

Market sentiment has undoubtedly shifted from last week’s bearish demeanor in both the precious metals complex as well as U.S. equities. Gold pricing was dramatically under pressure last week as traders and investors liquidated gold positions to cover losses in U.S. equities. Over the last two trading days (Friday and Monday), U.S. equities found tentative support and have traded dramatically higher. The Dow Jones Industrial Average, for example, has gained almost one thousand points in just two days.

Sentiment for U.S. equities and gold reversed from last week’s bearish demeanor, as traders have bid up both stocks and gold today.

As reported in MarketWatch, Chintan Karnani, chief market analyst at Insignia Consultants, commented on falling gold prices last week saying, “Traders booked profits in gold long positions to meet margin money calls on equity investments. Gold fell as a result. Stability on global stock markets will be positive for gold. Investors will hedge in gold to counter stock market volatility whenever there is less need for margin calls on stock market investment.”

At the same time, we have seen treasury yields rising which has a push and pull effect on gold prices. Rising yields produce better returns on fixed income investments thereby reducing investor appetite for gold. However, the rising interest rates are directly tied to inflation which creates a bullish financial undertone supporting gold.

After last week’s extreme volatility and dramatically lower stock prices, it will be interesting to see if the last two trading days and thousand-point gain in the Dow are indeed indicative of a pivot and key reversal in stocks. If so, we can also expect to see gold prices stabilizing and moving higher.

Wishing you as always, good trading,