Gold Gains Ground After Two Days Of Declines

June 12, 2019 - 6:19pm

 by Gary Wagner

After trading to lower prices on Monday and Tuesday of this week, gold has staged a moderate recovery. Monday’s action resulted in a $10 drop in price, this occurring after a phenomenal rally which began on Thursday, May 30. This would mark the beginning of seven consecutive days which resulted in higher closes when compared to the previous day. In fact with the exception of one day, June 6, the remaining six trading days could all be characterized as having a higher close, a higher high and a higher low than the previous day. Although in terms of time duration this leg of the rally was rather brief, however in a short period of time gold managed to gain approximately $80 in value.

There are two primary underlying events would certainly have a bullish effect on gold prices. First was the uncertain outcome and timetable of the current trade war between the United States and China. It is widely acknowledged that the longer this issue is not resolved the more potential there is that the result will be a major slowdown in the global economy.

Secondly, there were comments made by both the Federal Reserve Chairman, and president of the St. Louis Federal Reserve Bank which underscored their readiness to act with rate cuts to “continue the economic expansion”. Although market participants had been factoring in a possibility of two rate cuts is here, by Friday of last week the consensus believe that there could be as many as three rate cuts in 2019.

One minor event was the addition of the real possibility that Trump would impose a 5% tariff on Mexico which was set to begin on Monday, June 10. In an 11th hour deal this action was averted which gave some relief to equities traders who feared the worst if Trump did begin to tax Mexican imports to the United States on Monday.

More importantly many traders believe that the Mexican standoff was a minor thorn in the trade war between our two superpowers. With no resolution in sight until the G-20 meeting which will be held later this month, traders can only speculate and wonder what type of timeframe it will take for the two countries to come to an equitable solution which works for both superpowers.

Our current technical studies indicate that the recent decline in gold prices most likely will be shallow and short-lived. Although today’s six dollar gain does not confirm that this minor correction has concluded, it is certainly a move in the right direction.

Our technical studies indicate that the first level of potential support is at $1334.30, which is a .23% Fibonacci-based retracement covering the length of the last rally from $1273-$1352. Below that the next level of support is at $1322.50, this is the .38% Fibonacci retracement level. We also believe that the lowest gold prices could go, although unlikely would be $1310 to $1313 which is a 50% Fibonacci retracement.

It is our current belief that gold will inevitably find support at one of the three levels we spoke about above and following the conclusion of this minor correction has a high probability of making a new record close for the year of 2019.

Wishing you, as always, good trading,

Gary S. Wagner - Executive Producer