Oro Più Alto Sulle Preoccupazioni Per I'Italia

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In English, this Italian title translates to “gold higher on concerns about Italy.” Acting like a safe-haven asset for the first time in a while, gold prices traded dramatically higher as concerns have grown by the European Commission about the proposed budget plan in Italy.

According to MarketWatch, “The European Commission raised concerns over the budget plans of the anti-establishment Italian government. Last week, Italy’s government proposed a budget deficit target of 2.4% of its gross domestic product, which would triple the deficits proposed by previous governments. The budget plans are seen as putting Italy in conflict with the European Union’s stringent fiscal rules.”

Gold futures are trading sharply higher, currently up $15.50 (+1.30%), and fixed at $1,207.20. These gains are entirely based upon traders bidding the precious yellow metal higher after accounting for a small decline to dollar strength.

Spot gold is currently trading strongly higher on the day and fixed at $1,202.60. According to the KGX (Kitco Gold Index), today’s gains are entirely based upon normal trading which resulted in a $16 gain today. After subtracting two dollars of value due to dollar strength, we get the net gain of $14 on the day.

On a technical basis, today’s gains take current pricing in gold futures right below the 50-day moving average. Basis the most active December Comex contract, the 50-day moving average for gold is at $1,207.70. Gold traded to an intraday high of $1,212.30 today, which is well above the average, before settling just $0.50 below it. The last time gold traded above this average was on April 20 of this year.

This average is a critical technical indicator which analysts use to determine whether or not a market is currently in a short-term bullish or bearish demeanor. While it is the 200-day moving average that identifies the long-term trend of the market, as a bear market returns to a bullish demeanor, it must first break back above the shorter-term 50-day moving average.

The fact that gold closed back above $1,200 per ounce is significant. However, gold must hold this current pricing and form a base above this key psychological support level and then challenge the major resistance which resides at $1,218 per ounce, before we can say that gold prices have bottomed and the corrective period has concluded.

The fundamentals that have been the basis for recent price declines in gold still remain. Higher interest rates in the United States have resulted in dollar strength which, when combined with a strong risk-on market sentiment favoring U.S. equities, could continue to weigh heavily on gold pricing.

The real question is whether today’s strong uptick in gold indicates the conclusion of the correction in gold prices or simply a dead cat bounce. While today’s move above $1,200 is truly bullish, only time will tell us whether or not this is the beginning of a real rally in gold.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer