Gold Prices Jump Higher as Stocks Retreat
Metals caught a boost from a moderate decline in the dollar against the Euro and several other major currencies during the middle of the day but couldn’t fully hold onto the gains throughout the day. Silver lagged behind for much of the day prompting precious metals bulls to take a cautious approach to today’s rally.
For the most part, traders appeared to be taking a wait-and-see approach to today’s price action. Any rally that clears overhead resistance or holds above one of the major moving averages could quickly set the stage for a bigger move but until that occurs, many investors are waiting on the sidelines to see if gold will retest the December lows.
Stocks continued to struggle as Friday’s jobs report weighed on the market ahead of earnings season. The Dow Jones Industrial Average and Nasdaq both gave up about 1% after being considerably lower for much of the morning. If the ongoing correction in the stock market starts to gain momentum, it will likely create a flow of cash back into safe haven assets such as treasuries and commodities. Any quick rebound in stocks that is driven by positive earnings will set the stage for another eventual leg to the downside in precious metals.
Precious Metals Fall Sharply Today
April Gold Prices Lower to Start the Month
Precious metals were under pressure today during the New York session as spot prices fell sharply in afternoon trading. After hovering between $1670 and $1680 per ounce for most of the morning, the price of gold plummeted to a low near $1640 after comments from the Federal Open Market Committee’s March meeting indicated a growing consensus towards moving away from additional monetary easing to support the economy.
A period of gradual but sustained economic growth combined with an improving labor market were enough to convince the FOMC that the recovery is likely to continue without support from additional quantitative easing. While the fed did not rule out additional stimulus if the recovery stalls or conditions begin to deteriorate, the prospect of an imminent QE3 appears to be off the table.
Prices reacted violently to the news closing down $31.20 to end the session at $1646.50 per ounce. Silver made a similar move after climbing for most of the morning. After briefly touching $33.42, silver retreated $0.31 to below $32.70.
Gold will likely find some support near $1640 and may rebound slightly but technicians will keep a close eye on that level as a breach would likely indicate that a retest of the December lows near $1550 is in play.
While any policy shift towards raising interest rates still appears to be a long way out, the current stance is one that would likely keep inflation at lower levels than what many market participants had expected. As some of this inflation premium begins to seep out of the gold market, precious metals may see continued downward pricing pressure in the near term.
For now, the metals continue to be range bound with a bias towards the downside but it is important to remember that this action is taking place within what is still a secular bull market. After today’s bearish price action, futures traders will likely have to wait for some bottoming to take place before entering any aggressive new positions. Some indicators to keep an eye on would be a cross above the 21-day moving average, relative strength moving back above 50, or a break out above resistance at around $1700 per ounce. Longer term investors may consider adding to existing positions on the dips as long as there is a clear understanding that it may be quite some time before the investment pays off.
Gold and Silver Vault Higher
March Prices Climb After 3 Week Downtrend
Precious metals caught a strong bid on Friday as stocks closed the week modestly higher. By the end of the day, gold closed up $17.90 per ounce to end the week at $1662.80. The move represents a gain of just over 1% on the day and was a continuation of yesterday’s strong rally off of the morning lows that briefly saw spot prices dip below $1620. Today’s action was supported by a solid gain in the Euro against the U.S. dollar that started early in the morning and continued throughout the day as EUR/USD closed near session highs.
Silver outperformed the other metals today notching a gain of over 2% and demonstrated some leadership to the upside for the first time in several trading sessions. Mining stocks and others tied to the metals were sharply higher today with Newmont Mining (NEM) posting a gain of 1.74% and Barrick Gold (ABX) rising 1.58% to finish at $43.76. This is one area of the market that has underperformed over the past two months and helped the bears make their case for lower prices going forward. Any sustained participation by these stocks to the upside will likely be viewed as a bullish indicator for precious metals.
Whether today’s move was the start of a new rally or just a short-term retracement correcting an oversold condition is yet to be seen. Traders will be looking for some follow-through on Monday as a potential indicator that precious metals may be trying to form a bottom. If another move higher can break through key overhead resistance such as the longer-term day moving averages, it would indeed appear that the bulls would once again be in control.
March 23rd Price Per Ounce at the Close: $1662.80
Gold Prices Bounce Higher Today
March Prices
After briefly trading as low as $1640 per ounce early in the New York session, gold spot prices rebounded today to close $2.80 higher going into the weekend. The overall trend over the past 30 days however continues to be to the downside. Selling pressure brought on by a shift in investor sentiment back towards equities and other riskier asset classes along with a rallying U.S. dollar have sent traders fleeing precious metals. While the overall fundamental picture for gold and silver appears to remain favorable, a re-test of the December lows is starting to look like a distinct possibility.
Looking at longer term charts, the recent correction would appear to be a healthy and expected consolidation after a significant bullish move that saw a series of multi-year highs put in place at the end of last summer. Traders who are considering doing some bargain hunting or are looking for an entry point would be advised to allow some additional corrective work to take place prior to establishing any new positions. The long-term trend is still to the upside but the recent decline has brought the price below several key technical levels.
Some support starts to show up around the $1600 level with much stronger support at $1550. This would be the first place for a bullish investor to consider an entry. At least some kind of bounce is likely to take place of a re-test of the December low but a tight protective stop is recommended to guard against a break to new lows. Before any meaningful rally can take place, a bottom with some healthy base building price action would have to start showing up. Unless and until that begins to appear, any short-term rally is likely to get turned back down by overhead moving averages. An aggressive trader might want to consider initiating a short position when the momentum of these upside tests fade.
One key technical indicator to watch for over the next few weeks is the potential for a bearish cross-over of the 50 and 200 day moving averages. This could indicate that the established long term trend is about to change. Remember that while the financial situation in Europe appears to be improving, that improvement is riding on the back of a massive amount of quantitative easing and money being injected into the system. The laws of economics dictate that at some point, this party will come to an end. Gold is likely to benefit from a significant decline in global equities so do not look for a prolonged down trend even though some additional declines are likely in the near term.