Gold Trades to Critical Support Level

February 4, 2019 - 5:06pm

 by Gary Wagner

Gold futures are trading under pressure today, with the most active April 2019 contract currently down $5.60 and fixed at $1316.50. However, it is the low that has generated the most interest on a technical basis. Today’s low came in at $1312.70, which is $.20 above the .23% Fibonacci retracement level.

The data set used for this Fibonacci retracement is quite extensive. It begins in December 2016 when gold was trading at $1124 per ounce, up to the highest trading point of 2018 at approximately $1370 per ounce. Therefore this data set covers the entire range of gold over the last three years.

While it is quite obvious that gold is under pressure today the vast majority of today’s decline is directly attributable to dollar strength rather than market participants bidding the precious yellow metal lower. As of 4:22 PM Eastern standard time spot gold is fixed at $1312.90 which is a net decline of $4.20 on the day. According to the KGX, (Kitco gold index) $3.30 of today’s decline is directly attributable to dollar strength, with the remaining decline of $.90 a direct result of market participants favoring the sell side of the market.

The fact that gold is trading only marginally lower after accumulating four consecutive months of solid and respectable gains underscores the resilience and current demand of this commodity.

Although dollar strength is the largest contributor to today’s decline in pricing, it certainly must be noted that market sentiment today is favoring a risk on environment with U.S equities all showing positive gains on the day. With just about one half hour left in trading the Dow Jones industrial average is currently trading up by almost 100 points, and the NASDAQ composite currently exhibiting gains of just over a full percentage point.

In terms of the precious metal complex itself three out of the four precious metals are trading lower, the exception today is palladium. Palladium has once again overtaken gold and holds the title of the most expensive precious metal in the complex. After accounting for today’s gains of 1.32%, (+$17.30) palladium futures are currently trading at $1330.90.

Our technical studies currently indicate that there is support for gold futures at $1312, the .23% Fibonacci retracement level. Currently the resistance level for gold is based upon last week’s high of $1330 per ounce, and the major level of resistance continues to be $1370 per ounce, which is the highest trading point that gold traded to on multiple occasions beginning in September of 2017, and on multiple occasions last year. With the Chinese lunar New Year’s about to begin some analysts believe that demand will decrease as the lunar new year celebration commences and markets close for an entire week.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer