After falling sharply to $1,141.70, did the gold price just turn the corner today?
Bullion.Directory precious metals analysis 1 December, 2014
By Terry Kinder
Investor, Technical Analyst
Did the gold price just turn the corner? Although we’re not sure yet, we were sure that we saw this buck laying down in the back yard of my older brother’s house.
After visiting family for Thanksgiving, I’m back. It was a nice visit and only one relative over 5 years of age threw a temper tantrum. Surprisingly, it wasn’t me. Got to see the Chihuly outdoor exhibition, followed the Silk Road (no, not that one) at the Denver Museum of Nature and Science, watched the Air Force football team defeat Colorado State University at Falcoln Stadium, saw some deer right in the back yard of my older brother’s house, had a nice time with friends and family, and ate, and ate and ate, and ate some more. Even though I can’t blame the turkey’s tryptophan for my holiday induced coma, nevertheless I did keep one half-opened eye and a couple of brain cells on duty to watch the gold price over the holiday weekend, and it was a wild one.
It’s a good thing I decided to write this (and will be writing my weekly gold price support resistance piece afterwards) because the gold price picture really changed a lot between last night and this morning. Not surprisingly, the failure of the Swiss to pass the Save Our Swiss Gold initiative, resulted in a steep and sharp sell-off in gold, dragging the gold price all the way down to $1,141.70. At that point I was really starting to think that the gold price might break lower and head under $1,100.00. Instead, this morning I woke up to gold at around $1,179.00 and it continued to move higher as the day wore on.
Did the gold price just turn the corner? An even better question – is that a Rice Krispies Turkey? Yes, and no we didn’t have one for Thanksgiving. Source: GardenWeb
At the same time as the gold price moved higher, the US Dollar Index (DXY) moved lower, and is currently under $88.00 as this is being written. $1,202.00 has been a critical level for gold, and it has failed to be able to reach and stay above that level after several attempts. The day isn’t over yet, so we’ll need to see if gold can stay above $1,202.00. However, with the gold price having reached as high as $1,221.40 earlier, gold seems to have a decent chance of ending the day above $1,202.00.
The sudden turn higher in the gold price shouldn’t necessarily be a surprise given the negative GOFO rates. If you want to really dive into GOFO and what it means, you can read further here. Another excellent explanation of negative GOFO and why it may occur appears over at ZeroHedge. According to ZeroHedge a negative GOFO rate may occur for the following reasons:
- An ETF-induced repricing of paper and physical gold
- Ongoing deliverable concerns and/or shortages involving one (JPM) or more Comex gold members.
- Liquidations in the paper gold market
- A shortage of physical gold for a non-bullion bank market participant
- A major fund unwinding a futures pair trade involving at least one gold leasing leg
- An ongoing bullion bank failure with or without an associated allocated gold bank “run”
- All of the above
So, while we can’t necessarily be sure why the GOFO rate is negative, it is possible that it relates to tightness of supply in the market. If that is the case, then it would make sense why the steep drop in the gold price that took place Sunday into Monday morning did not last very long.
Did the gold price just turn the corner? There are hopeful signs, but it may take another day or two to have a better idea if the gold price will continue to head higher.
Looking at the chart above, the gold price has made some significant improvement during the last 24 hours. The gold price broke through the $1,186.70 or 0.50 Fibonacci Retracement level after having fallen below it. MACD appears to be ready to break its downtrend and, after falling sharply, RSI took a strong bounce higher.
While it isn’t certain yet whether or not the gold price has just turned the corner, if gold can hold above $1,202.00 and advance above and hold $1,235.30, then it should stand a pretty good chance at advancing at least to the $1,295.40 and possibly the $1,392.60 levels.
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