Trade War Concerns Pressure U.S. Equities and Support Precious Metals

February 7, 2019 - 5:38pm

 by Gary Wagner

The Chinese markets might be closed this week, however concerns about the continuation of our looming trade war continues. Resulting in U.S equities closing sharply lower today and as of 4:30 PM Eastern standard time the Dow Jones industrial average is off by well over a full percentage point and currently trading down almost 290 points a net decline of 1.15% on the day. The NASDAQ composite is experiencing deeper losses today currently down approximately 1.5%, and the Standard & Poor’s 500 is down by 1.3%.

At the same time precious metals are not so black and white, as we see major price differences in gold when comparing current futures pricing to that of spot prices. Currently spot gold is fixed at $1310.40, a net increase of $4.20 on the day. At the same time gold futures basis, the most active April contract is currently unchanged at $1314.40.

Most interesting is that today’s moderate gains in the physical price of gold are entirely based on bullish market sentiment, with traders bidding the precious yellow metal higher by $6.00 per ounce. Dollar strength has resulted in a decline of $1.80 limiting today’s upside move in spot gold, this according to the KGX (Kitco gold index).

Although gold futures are showing very little change on the day, most noteworthy is the fact that after trading to a low today of $1306, prices quickly rebounded and are currently range bound between up $.20-$.30, and down $.20-$.40.

Both silver and palladium are trading higher on the day. Currently silver futures basis the most active March contract is trading up almost 2/10 of a percent and currently bid at $15.73. Palladium is exhibiting gains of 6/10 of a percent, which is a gain of $8.10 today. Putting March Palladium futures at $1359.70. Obviously, palladium continues to outshine and outperform the other precious metals in the complex.

It is an uncommon occurrence for spot gold to be trading moderately higher and gold futures to be trading fractionally lower. That being said we have seen this scenario occur twice in the last two weeks of trading. This might be indicating that gold prices will move higher and that the current price correction might in fact be short-lived.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer

Sentiment Indicator:

Gold Forecast: Proper Action
We are currently Flat with no active trades. We are looking for the proper place to re-enter the market from the long side.
 
On Sunday, January 27,  we sent out a trade alert to buy April Gold
Friday we sent out a trade alert to raise stop to $1317.00
 
We took $1000 profit per contract when our stop was hit on Sunday
 
 
Gold Market Forecast
Although yesterday's lower pricing in gold confirmed that we have entered a correction, this correction could be very short lived.  The correction began immediately following the highs achieved last week, when gold traded to $1330 per ounce. The question now becomes where will gold find potential support, which would conclude the current correction, and initiate a resumption of the rally which has been in play for quite some time.
 
Based upon our technical studies once $1312 was broken the next real level comes in at approximately $1300 per ounce. However today's action resulted in gold futures moving back above $1312, which to me is bullish. Add to that the fact that spot gold closed over $4.00 higher.
 
Although a correction can go as deep as .618%, in this particular instance I believe we will see a shallow correction of .23% or .38% based upon the fact that the last correction witnessing gold was a fairly deep correction. In terms of the Elliott wave count there are two corrective waves, wave two and wave four,  typically one of those corrections is deep and the other is shallow. For that reason we could see this correction be very shallow with the .23% level becoming the bottom of the range.