Typically, a market with extreme bullish sentiment trades to new highs, but also has period of market consolidation or a shallow correction before returning to a bullish rally. It also will typically trade to a new high.
Gold however is trading to a different drummer in that the rally currently in play is finding resistance at $1561, and has not had any real protracted or deep correction since June of this year when pricing went almost parabolic. There is also a strong probability that gold prices will reach a six-year high. What this means is that the current pricing has actually entered the price range that was created after gold moved to an all-time record high above$ $1900 before it then strongly corrected. During that period gold had traded in a wide trading range with defined levels of support resistance. Support for the precious yellow metal came at $1531 per ounce, and the resistance level maintained itself at $1800 per ounce. Gold oscillated between those two prices for a two-year time span.
What we have seen is an extremely volatile range during trading. One explanation for this trading pattern is that the market reacts to any news positive or negative by the United States administration and the Chinese delegation, which are mostly hollow words and that no real progress has been made to resolve the trade war. Also if the negotiations are yielding no progress on the exchange of technology from the United States to China, which is pivotal to the United States in making a profound and dramatic change to how China receives technology from us. The United States only wants a fair transfer of technology, not a free transfer of technology.
However, because today’s rally is based on economic numbers rather than words from either side of the trade war it has a real possibility of holding the gains and moving up from current pricing.
Silver on the other hand is trading with more momentum to the upside than gold. This can be seen in today’s activity in which silver futures closed 5.58% higher and has broken above $19 per ounce currently fixed at $19.365. In fact, silver futures hit a new price high above the recent high for the last three years. Silver is in the safe haven asset class, but is also highly valued for its industrial uses which is why we see silver outperformed gold. The truth is that silver will tend to do well when the U.S. equity markets are strong and moving higher, is typically the opposite effect in gold which traders used to move money from equities to the precious metals in times when they believe the market sentiment is risk on.
All things being equal we can expect that the current intraday high of gold at $1564 will be breached very shortly if this current rally continues.
Wishing you as always, good trading,