Gold recovers slightly from Monday’s dramatic decline

Gold has closed higher for three of the last four trading days. That being said, gold did sustain a sizable price decline this week. On Monday gold futures traded to a low of $1,848, and closed just slightly above that at $1,854.30. As of 3:45 PM EST, the most active December Comex contract is currently fixed at $1,886.20, after factoring in today’s gain of $12.90 (+ 0.69%). Dollar weakness accounted for a portion of today’s gains. The US dollar index lost approximately ¼% and is currently fixed at 92.73.

The low that gold traded to on Monday is a significant technical price point as it represents a 38.2% Fibonacci retracement of the rally which began in March, when gold was trading at $1,450, to the new record high of $2,088 which occurred on August 7.

On a technical basis, the price decline from the highs of August could be considered moderate as you factor in the gains achieved during this last rally. It is also significant in that a 38.2% retracement is quite acceptable considering the gains of $638. The rally from March to August resulted in a net gain of $638. The correction that followed resulted in a decline of $243. Undoubtedly the rally that began in March was one of the largest price advances since the middle of 2011 when gold traded to a high of $1,920.

Our technical studies also indicate that the next strong level of resistance does not occur until $1,939. This price point is also based upon a Fibonacci retracement of 23.6%.

Silver futures also had a tremendous rally from the middle of March up until the first week of August. Silver futures prices had dropped just below $12 per ounce before finding support. The rally concluded during the first week of August taking silver to an intraday high of $29.94. However, in the case of silver prices would drop below the 38.2% Fibonacci retracement during the last week of September and then traded to a high just shy of the 23.6% retracement in October and again on Monday of this week.

The key difference was that the decline in silver on Monday closed well above the 38.2% Fibonacci retracement. Our technical studies indicate that there is solid support for silver at $23, with major resistance occurring at $25.77.

It is also significant that this week’s price action created a double bottom in gold. The lows of this week matched the lows achieved during the last week of September. Technically this could be indicating that we will see gold move higher next week.

Wishing you as always, good trading and good health,