Powell Dampens Current Gold Rally

Gold futures once again have traded to a higher high, higher low and higher close than the previous day. As of 4:30 PM EDT the most active August futures contract is currently fixed at $1426.20, which is a net gain of $8.00 on the day. In fact, gold traded to an intraday high of $1442.90, before giving back some net gains in reaction to statements made by Fed Chairman Jerome Powell today at the Council on Foreign Relations.

According to MarketWatch, “Federal Reserve Chairman Jerome Powell on Tuesday suggested that an interest-rate cut in July, widely expected by investors and economists, is not a done deal.” However, Powell also said that “many FOMC participants” judge that the case for somewhat more-accommodative policy has strengthened.

While gold did lose ground after trading to a new intraday high for this year, it still managed to hold onto solid gains. Another noteworthy aspect of gold pricing today was the fact that it gained ground in light of dollar strength. Recent gains over the last four trading days were all aided by a falling U.S. dollar which began on Wednesday of last week just below 97.25, and traded to an intraday low today of 95.38, before finding support and closing approximately 0.2% higher on the day at 95.655.

The exaggerated intraday high in gold, coupled with the expanded trading range and concluding with a close only three dollars above the opening price created a single day Japanese candlestick called a “doji”. This candlestick can be a precursor and indicator of a potential top in a market; however, it can also simply indicate a rest area or consolidation of pricing. The key to this candlestick type is what occurs just prior, and after it. Because today’s candle is in a star position (simply meaning that the real body of today’s candle is completely above the real body of yesterday’s candle) a lower close tomorrow would create a red candle and complete a three-day candlestick pattern known as a “Three River Evening Star”. This pattern could indicate a higher probability that this current rally might sustain a correction if the fourth candle (confirming candle) in the pattern was a red candle (lower close than the opening price) with a lower low and a lower high.

It could also prove to be simply consolidation as witnessed on Friday when gold traded and closed relatively close to the opening price, while at the same time trading to a higher high and a higher low than Thursday’s daily candlestick. The key difference is on Friday the real body was not in a star position.

The multiple economic factors and geopolitical events currently creating the bullish market sentiment in gold have not faded or been resolved. The trade war between the United States and China is still unresolved, Central Banks worldwide continue to move their monetary policy to a much more dovish and accommodative stance, and the current tension between the United States and Iran continues to deepen.

These factors could continue to provide bullish sentiment for gold as the safe haven asset continues to provide market participants with relative safety.

Wishing you as always, good trading,