Gold Continues to Trade Under Pressure

February 6, 2019 - 5:55pm

 by Gary Wagner

Gold futures broke a key support level at $1312 today. As of 5:00 PM Eastern standard time April futures are trading at $1310.50 which is a net decline of $8.70 on the day. Spot gold is experiencing similar draw-downs, and are currently fixed at $1306 after factoring in a decline today of $8.80.

According to the KGX, (Kitco gold index) today’s decline is almost an equal combination of dollar strength and market participants bidding the precious yellow metal lower. Currently dollar strength is accounting for a decline of $4.50 today, with the remaining $4.30 attributable to selling pressure.

Considering that the current leg of this rally began at $1200, this decline is to be expected. This leg began following the first part of a larger rally which began after market forces took gold pricing to $1167 per ounce.  This confirms that bullish sentiment continues to dominate long-term views of the market.

Beginning at $1196 per ounce during the middle of November 2018, this current leg took gold pricing $134 higher before profit-taking began. This fits within the normal parameters of gold trading higher and exhibiting a bullish demeanor with defined corrections along the way.

The question becomes if gold is truly still in a bullish mode how low could gold pricing go before this correction concludes, and the trend pivots and once again begins to gain value? Currently our technical studies indicate that the next real level of potential support comes in at $$1299.80 per ounce, which is the .23% Fibonacci retracement of this most recent leg which took gold from approximately $1200 to $1330. Below that price point the next level is created from the .38% retracement of the same data set which resides at $1279.40.

Either of these levels would be an acceptable level for a shallow retracement. A deep retracement could take current pricing as low as the .618% Fibonacci retracement which is currently set at $1247. Interestingly that particular price point is almost identical to the .618% retracement of a much longer data set, which begins at $1370 and concludes at $1167, thereby creating a Fibonacci harmonic. A Fibonacci harmonic is created when two data sets of different parameters occur at a similar price point. Such is the case at approximately $1247 per ounce.

However, it is our belief that any retracement should conclude well above $1273 per ounce which is the current 50-day moving average. If gold is truly in a short- term bullish mode it should continue to trade at or above this moving average. The long-term 200-day moving average currently resides at $1250.50. So most importantly as long as gold remains above that price point the long-term bullish outlook remains.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer