Gold Hits Key Resistance, Trades Low on Equity Highs

Would the market really let gold advance from the best daily performance in over a year?

Bullion.Directory precious metals analysis 10 November, 2014
By Christopher Lemieux
Senior FX and Commodities Analyst at FX Analytics

Last Friday, gold saw the best performance since September 2013, moving up almost $35 per toz. on downward pressure on the dollar after a less than optimal non-farm payroll report. However, price action shot up to key resistance; and, gold is lower on the day via profit taking and another “all-time” high in the S&p 500.

Gold played out very well on a technical basis. Last Monday’s analysis was issued with gold prices being pressured at $1,170 per toz., and support was seen at $1,133 and $1,108. Gold futures tested and found support near $1,133, and Friday’s run-up set gold up to close the week at $1,178.70 ($.30 off of resistance level one).

This week opened up to profit taking on no one particular event except a mildly-stronger dollar, which pushed equities to another daily new high. Currently, gold is trading at $1,160.

Taking a look at the gold futures weekly chart, gold prices still remain weak with no follow through on Friday’s action. Price action has been slowly trading lower through a descending channel, and a close below $1,133 would signal a move to $1,108 that lines up in tandem with the channel’s descending support trend line.

It could get rather dicey for gold if that key support level is broken, as prices could trade rather quickly to $1,000 or below.

However, if gold can trend slightly higher, or even sideways, a move to retest $1,179 is probable. If so, a close above this level would send price action to $1,195/1,200 per toz.

Although there is still extreme bearishness in gold during stock market bliss, fundamentals still support adding gold at such low levels.

Dan Denbow, portfolio manager for the precious metals and minerals fund at USAA, said “we do still have quantitative easing going on in Europe, and we’ve see a massive step up from Japan last week that was ignored by the gold space.” Japan surprised financial markets with a ramp up in the failed Bank of Japan QE program, which will now buy all of the monthly debt issued by the Ministry of Finance.

Analysts and economists have already come out to question BoJ Governor Kuroda’s sanity. The BoJ has roughly 50 percent of Japan’s GDP on their books. “As you start seeing more stimulus from other economies [look to the eurozone]. long-term that should be supportive for gold prices,” added Denbrow. Gold closed out last week on a strong note, but there is still much ground to be made up.

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