The Week That Was – Gold Traders Wonder If the Selling Is Over

Five steps forward and three steps back. This represents how the most recent activity looks on a weekly gold chart. Beginning the week of March 13^th, for five consecutive weeks, gold prices closed higher on the week. This upside action moved gold prices from below $1200 to just below $1300. Gold prices topped the week of April 17^th after achieving a high of $1297, before trading slightly lower on the week with the closing price of $1288. The following week gold prices opened at $1279 and closed $11 lower on the week at $1268.

The selling pressure accelerated last week, resulting in the largest weekly price decline this year. Losing roughly $40 on the week, gold prices found tentative support and closed at $1227 per ounce. During the last three weeks, the selling pressure in gold has resulted in a dramatic price decline, giving up almost 78% of the gains witnessed during the five-week rally.

Although gold hit an intraday low today of $1221 (most active June 2017 futures contract), and as of 3:45 Eastern Standard Time is trading fractionally higher, with a net gain of one dollar on the day at $1227.90.

Physical gold is currently trading up $0.10 on the day. However, on closer inspection, it is US dollar strength that is the underlying reason for such a small fractional gain. According to the Kitco Gold Index (KGX), gold traders have bid current prices up by $6.40. After subtracting $6.30 based on a strong US dollar, the price of physical gold is effectively unchanged on the day.

Friday’s report mainly focused on the fact that a technical case can be made for both a continuation of the most recent selling pressure and for the possibility of gold prices finding support at this price point.

The primary technical study cited for a continuation of selling pressure showed that gold prices broke below their 50 and 200-day moving average. The primary technical study cited for gold prices finding support noted that this recent decline has given up a little over 61.8% of the gains achieved from the March 13th rally.

The key is whether gold prices will hold steady at this price point or break below the 78% retracement at $1217. If gold prices firm this week, and manage to avoid trading and closing below this critical price point, it could signal the end of the selling pressure that has been so evident over the last three weeks. Conversely, a break below $1217 could signal stronger downside selling pressure, and more importantly, identify this recent price decline as the return of bearish market sentiment as opposed to a correction.

Wishing you as always, good trading,