Fifty Day Moving Average Continues to Define Resistance

Gold is trading under dramatic pressure today, with the most active Comex futures contract currently fixed at $1,191.40, which marks a net decline of $14 (-1.16%) on the day.

Gold opened at $1,206.70 this morning, which is just above its 50-day moving average. After trading to a high of $1,208, gold began to sell off and broke below $1,205.70, which is the 50- day moving average.

In fact, since Tuesday of last week (October 2), gold pricing traded above the 50-day moving average and then closed below it. Last Tuesday, gold had a strong upside move as it traded to a high of $1,211.90, and then closed below the 50-day moving average when prices settled at $1,206.90.

On Wednesday of last week, gold prices opened just below this average, and although it had an intraday high just above the 50-day moving average, it closed below it. In fact, trading throughout last week was characterized by intraday highs above this key moving average, and on each occasion closed below it.

The key difference between this week and last week was the fact that gold pricing was able to stay above $1,200 per ounce on Tuesday, Wednesday, Thursday, and Friday. The same cannot be said of today’s activity when traders aggressively sold both physical and gold futures, taking the precious yellow metal’s price well below $1,200 per ounce.

Since July 22, when a death cross (when the 50-day moving average crosses below the 200-day moving average) was identified, gold has not been able to close above the 50-day moving average. This average has defined critical levels of resistance for the last four months. What traders have witnessed since the end of July is a growing divergence between these two averages.

The price decline in gold is due to a combination of dollar strength and higher interest rates, and this pressure continues to today.

Although today’s lower pricing is composed of both selling as well as dollar strength, it is selling pressure that is the predominant feature of today’s price break below $1,200.

As of 3:52 PM Eastern standard time, spot gold is currently $15.20 lower. According to the KGX (Kitco Gold Index), today’s price decline is primarily due to traders bidding the precious yellow metal lower which is accounting for $13.60 of today’s selloff, with the remaining $1.60 directly attributed to dollar strength.

Palladium Bucks the Trend

The only precious metal to have pricing above this key indicator is palladium. More impressive is the fact that it appears as though the recent price advance will create a golden cross (when the 50-day moving average crosses above the 200-day). There is a unique supply issue and strong demand that has been the underlying factor moving palladium higher. Since 2017, demand has overwhelmed the current supply and continues to do that to this day.

Wishing you as always, good trading,