Investors Favor Safe Haven Assets, Moving into The Dollar and Gold

Although global stock markets had moderate gains today, U.S. equities were once again under dynamic pressure which resulted in a 600+ decline in the Dow Jones Industrial Average. The Dow lost 608 points (-2.41%) in trading and is currently fixed at 24,583.42. The NASDAQ composite also had substantial losses in trading today, and after giving up almost 4 ½%, today’s 321-point decline takes the index to 7105.86.

The dramatic liquidation of stocks today caused investors to turn to areas of perceived safety to protect their equity. The two benefactors of this flight to quality were the U.S. dollar and gold.

Today the U.S. dollar gained 4/10% or 0.392 points and closed above 96 for the first time since August of this year.

Spot gold had fractional gains of $1.80 in trading today and is currently fixed at $1,231.70. However, this fractional gain is somewhat misleading because dollar strength weighed heavily on current pricing today, creating $5.65 worth of negative headwinds.

Gold traders were predominantly buyers today and bid the precious metal up by $7.45. So, after accounting for dollar strength, the vast majority of gains in gold prices today were muted by dollar strength, according to the KGX (Kitco Gold Index).

Gold futures closed fractionally lower on the day, with the most active December Comex contract currently fixed at $1,235.30 after accounting for today’s decline of $1.40.

On a technical basis, the most interesting aspect of the trading range which developed in December futures today is the low. Although gold prices opened at $1,233.80, they traded to a low of $1,228.30, which is a mere $0.30 below the current 100-day moving average.

If you recall from yesterday’s commentary, we spoke about the fact that gold pricing closed above its 100-day moving average for the first time since April of this year.

Because market technicians use three moving averages (50, 100 and 200-day) to determine when a commodity is in a short, intermediate, or long-term trend, the close above the 100-day is exceptionally significant. It gives technical evidence to the fact that gold, which had been trading in a bullish short-term trend, has now moved into a bullish intermediate trend.

A long-term trend would be signaled if and when gold prices break back above the 200-day moving average, which is still $40 above current pricing.

The most noteworthy aspect of gold pricing is that there is a high probability that the lows achieved in the middle of August, and the price recovery taking gold above the psychological level at $1200 and above the short-term 50-day moving average, will point to the exact moment in which market technicians identified the dynamic shift in market sentiment from bearish to bullish. It seems at least for now that this newfound bullish sentiment will continue to grow with more upside potential for gold pricing in the near future.

Wishing you as always, good trading,