Gold Stages an Impressive Recovery, Will It Last?

Gold futures started off the day trading under enormous pressure overseas, which continued during the morning trading session in New York. These depressed prices were in tandem with falling stock prices here in the United States.

In trading today, gold futures (April 2018 Comex contract) sank to $1,303.60 before staging an impressive recovery. As of 3:40 PM Eastern standard time, gold is currently trading up $3.60 on the day at $1,321.40

Spot gold traded to a low today of $1,302.97. It is presently up approximately $2.50 and fixed at $1,320.30. Although sellers continue to dominate trading activity today, it is dollar weakness that has pulled gold by the bootstraps resulting in today’s price recovery. According to the Kitco Gold Index, selling pressure has resulted in a decline of $3.20. However, a weakening U.S. dollar added $5.70 in value today.

On a technical basis, Tuesday's strong selloff resulted in significant chart damage. This is based on two primary studies: current support trendline and the 50-day moving average.

The support trendline was created from the low of $1,235 which occurred in mid-December of last year, and the low of $1,308 which occurred on February 8. Tuesday’s sharp decline traded and closed significantly below this trendline. On Tuesday gold closed just above $1317 and below the 50-day moving average for the first time in 2018.

Yesterday gold traded in a compressed and narrow range that closed a few ticks below Tuesday’s close, still below the 50-day moving average.

That brings us to today’s trading activity, which took gold pricing dramatically lower.  As a result, gold has been trading within two dollars of the 50% retracement which currently resides at $1,302.

The real question is whether today’s impressive recovery in gold is a one-day wonder or an indication that the current correction has run its course. Technical confirmation that the lows achieved today indicated a conclusion to the current shallow correction would only come if gold pricing can close above $1,323, the present 50-day moving average.

On a fundamental basis it was President Trump’s proposal to implement tariffs on steel and aluminum that created the recovery. These actions have a high probability of leading the US into a trade war, which would result in sizable upside spike in inflation, which would be extremely bullish for gold.

Platinum and Palladium Trade Within $15 of Each Other

Platinum futures lost almost 2% on the day and are currently fixed at $969.60. At the same time, palladium futures lost over 5% in value as they dropped over $53 in trading today, with palladium futures currently at $983.90. These precious metals are obviously reacting to their industrial component as President Trump proposes tariffs on steel and aluminum that could dramatically impact automobile sales in the United States. As such, these two precious white metals traded significantly lower and as of this writing have not recovered.

Wishing you as always, good trading,