Today the U.S. Labor Department reported that an additional 5.25 million workers applied for unemployment benefits last week. This brings the total number of individuals applying for unemployment benefits to just over 21 million in the last month. These job losses are largely directly attributable to the current coronavirus pandemic.
Recent economic data indicates that there has been an immense amount of damage due to the pandemic to businesses globally and in the United States. Although gold continues to be a desirable safe haven asset class, and continues to hold value above $1700 per ounce, it is been the U.S. dollar that has been attracting investors worldwide.
Today it was dollar strength that for the most part moved gold futures lower. Gold futures basis the most active June contract is currently down $6.40, which is a net decline of 0.37%. After factoring in today’s price decline gold futures are currently fixed at $1733.80. However, spot gold has been slowly lessening the spread between spot and futures pricing.
According to the KGX (Kitco gold index) spot gold is currently fixed at $1717.60, after adding gains today of the $1.60. These gains can be deceiving once we look at the dollar in relationship to spot gold pricing which are paired together. Dollar strength today actually resulted in a negative $8.60 drawdown, and buyers bidding the precious metal higher moved the precious yellow metal up by $10.20, thereby having a net change of only $1.60.
Dollar strength also impacted gold futures pricing when you consider that the dollar index was up .65%, and gold was down only .37%. The difference between those two percentage points indicates that there was also buying in gold futures today. However, dollar strength over took any gains in both spot and futures pricing.
Over the last couple of days, we have spoken about a potential correction, or at least some weakness in gold pricing over the next few days. This discussion began on Tuesday of this week when gold prices reached its highest value to date in 2020. The June contract actually traded to a high of $1788.80. The take away to Tuesday’s trading activity was that after achieving a new yearly high gold could not maintain these gains and actually closed negative on the day.
Another factor was that Tuesday’s price range created a Japanese candlestick called a “doji”. This occurs on a daily chart when the market opens and closes at the same price point, or a tick or two apart. On Tuesday not only was a “doji” candle identified, but it also opened and closed above the prior close of Monday’s candle. This creates a “doji” in the evening star position. Yesterday gold pricing opened below the body of the star preceding it creating a Japanese candlestick pattern called a “three-river evening star”. Today’s lower pricing and the fact that gold prices closed below the open creates what is called a confirming candle suggesting more strength to the “three-river evening star” identified yesterday.
Since gold pricing closed below $1739, which corresponds to the 23% Fibonacci retracement level. This retracement level accounts for the last leg of this rally which began at $1575 up until Tuesdays high at $1778.80. If the market continues under pressure the next level of support would be the 38% Fibonacci retracement level which in gold futures occurs at $1707.60.
Wishing you as always good trading,