It’s Back to the Basics, Risk-On Market Sentiment Prevails

It’s back to the basics, with the Dow Jones industrial average closing higher for the first time in the last five trading days. Gold futures are currently trading fractionally lower. As of 4:45 PM Eastern Standard Time, the most active Comex contract (December) is currently $0.50 lower at $1,222.70.

Beginning overseas, global equity markets started trading higher on the day. Reports cite higher oil prices and confidence that the European Union might find common ground with the Italian government over its budget as the reason for this higher trading.

As reported in MarketWatch, “Reports that the Italian government is considering a lower deficit of 2%, down from 2.4% in its budget, were well received by the markets and helped lift the financial sector, notably in Italy. What remains unclear is whether the move will satisfy the European Union, which has threatened a disciplinary procedure over what it sees as a violation of its fiscal rules.”

The rally in global equity markets spilled over into the U.S. with all of the major indices trading sharply higher on the day. With five minutes remaining before the closing bell is rung, the Dow Jones Industrial Average is up by 1.41%, a net gain of over 341 points, and currently fixed at 26,627.90. The S&P 500 is up 39 points (+1.49%) and fixed at 2,672.04.

The NASDAQ composite is showing the most significant gain for the day and is up almost 2%, with a net gain of 136 points, and fixed at 7074.58. However even with the substantial gains today, the tech-heavy index is still sitting in corrective territory.

Given that gold is trading fractionally lower on the day, Goldman Sachs highlighted the “diversification value” intrinsic in gold.

According to a note issued by Goldman Sachs, and reported in MarketWatch, “If U.S. growth slows down next year, as expected, gold would benefit from higher demand for defensive assets,” and gold may also be “particularly appealing as a portfolio diversifier given that long-term bonds, traditional safe-haven assets, may be hurt if U.S. inflation surprises to the upside”.

On a technical basis, gold continues to have strong support at $1,218 per ounce. Our technical studies also indicate that the first level of resistance does not occur until $1,246 per ounce. Most noteworthy in today’s trading is that it appears as though the shorter-term 50-day moving average is about to cross above the 100-day moving average. This would be an extremely bullish indicator that gold pricing is, in fact, heading higher.

The upcoming G-20 meeting in Argentina and the FOMC meeting in December will be significant factors that will influence gold pricing for the remainder of the year.

Wishing as always, good trading,