Gold Takes a Needed Consolidation and Correction After Respectable Gains
On February 20 of this year gold pricing peaked at $1350 per ounce, the highest value gold has achieved this year up until recent action. For almost 5 months following the highs achieved on February 20 gold prices methodically and slowly corrected, giving up roughly 50%of the gains that were achieved from October 2018 until the middle of January.
On that particular rally gold prices moved a total of $150.00, taking gold from just under $1200 per ounce to $1350. What would follow was gold prices giving back approximately $75 until it reached a triple bottom at approximately $1270 per ounce.
The first bottom occurred on 23 April, the second occurrence at this price point was seen on May 2, and the final attempt to breach those lows occurred on May 21 when gold hit these lows for the third and final time.
From the end of May to the beginning of June gold pricing remained in a tight and narrow range, with highs just around $1290 and a series of higher lows just above the prior triple bottom at $1270.
On May 30 the market would finally close fractionally above the tight trading range, which was followed by a tremendously large upside spike which occurred on the May 31 taking gold from approximately $1295 up to $1310 per ounce.
What would follow was six consecutive trading days which could best be characterized as strong moves to the upside containing a higher high and higher low than the previous day. This allowed market forces to carry gold prices to an intraday high of $1352 on Friday, a new record high for 2019.
The majority of this move was predicated on a couple of factors. The predominant factor was last week’s comments by Fed Chairman Jerome Powell, and Fed President of the St. Louis Federal Reserve Bank suggesting the validity of a series of rate cuts be put in effect this year. In fact, by the end of the week the market was factoring in a total of three rate cuts to occur in 2019.
The other factors contributing to this rally was the trade war between the United States and China, as well as the recently proposed tariffs on Mexico. In an 11th hour deal, negotiations between the United States and Mexico proved fruitful and resulted in the alleviation of a 5% tariff that would have been implemented today.
This was the type of news that gold traders needed to hear in order to have a solid rational reason to take profits on their most recent gains. This was not only warranted but healthy when considering the rally that preceded.
Today August gold futures are currently down by $14.30 and fixed at $1331.80. Now the question becomes where will gold pricing once again find support, conclude the current correction and begin to once again trade to higher pricing.
Based on our technical studies the first level to start to look for potential support is $1320 per ounce. This is based upon a Fibonacci retracement of the most recent rally beginning at $1265 and terminating at $1352. Below that is a 50% retracement at $1310, and finally the .618% retracement at $1300 per ounce.
It is my current belief that this correction will be shallow and short-lived at best with gold prices trading to one of the price points mentioned above.
Wishing you, as always, good trading,
Gary S. Wagner - Executive Producer