Technical Selling and Renewed Risk-On Market Sentiment Pressure Gold Prices
Considering that since the beginning of March when gold futures were trading at a low $1280 per ounce, gold has gained some real distance in value during the month. Even with today’s modest decline, gold futures basis the most active April contract is trading at $1315.70. Today’s decline can be slightly attributed to selling by market participants, however the majority of today’s $6.70 decline is directly attributed to dollar strength as it relates to physical gold.
As of 3:45 PM Eastern standard time spot gold is currently fixed at $1315.50. According to the KGX, (Kitco gold index) today’s decline of $5.80 is comprised of $2.60 worth of selling pressure, with the remaining decline of $3.20 a result of a stronger U.S. dollar.
Although there are some analysts that are focusing upon higher stocks today creating a risk on environment that is put bearish pressure on the precious metals’ markets, the indices themselves are only fractionally higher on the day. The Dow Jones industrial average is currently up 82 points at 25,600. This is a net increase of approximately .32%. The Standard & Poor’s 500 has gained almost a half a percent, and the NASDAQ composite has gained approximately 4/10 of a percent. While this is solid upside performance, the gains today are fractional when compared to recent upside days in U.S. equities.
Selling pressure in gold silver and palladium, (platinum is the exception trading higher on the day) seems to be technically based for the most part, as well as a percentage of today’s decline in response to the treasury yield curve in version which is truly a rare occurrence. The reason that analysts are concerned about this is the last time the yield curve inverted was in 2007 which of course preceded the banking crisis and following the recession.
However, it must be noted that this inversion was temporary as it occurred for a brief moment in time on Friday. Nonetheless it does trigger fears that the global economic slowdown could have a dramatic effect on the U.S. economy.
On a technical basis we still remain bullish on gold pricing. Considering that gold has contained a higher high than the previous week, and a higher low than the previous week for the last four consecutive weeks.
Add to that the last three consecutive weeks have all contained gains when viewed from Monday’s open to Friday’s closing price. Currently although the gains are only fractional, we could see this be the fourth consecutive week in which we have a net gain.
Key levels that need to be watched basis the April Comex contract are the .23% Fibonacci retracement which occurs at $1313.90. The next key support level that must hold if we are going to maintain a bullish demeanor is pricing holding above its 50-day moving average which is currently at $1308 40. Currently April futures are fixed at $1315.20.
Resistance is composed of the two former tops achieved this year with the first one occurring at $1331, and the highest trading points of the year $1350 as being absolute resistance. Should those price points be challenged and surpassed, we will likely see follow-through buying challenging the multiple set of tops that have been the brass ring and sit at $1370.
Wishing you as always, good trading,