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Gold Pricing - A Major Weekly Decline

Commentaries & Views

Despite attempting to find a foothold and some price stability today, gold still suffered a major price decline this week. Gold futures are currently trading at 1229.30, marking a net change of approximately $0.60. Of course, any upside move would be dwarfed in comparison to the drawdown, which resulted in a $40 loss of value this week.

As a result of one of the largest price declines this year, market participants are attempting to parse this week’s fundamental data in relationship to the overall move in the pricing of both gold and silver.

The real question to answer is whether this week’s price decline is an indication of a top or a correction. To find an answer, we must frame this week’s move within the context of overall price movement throughout the year.

First, we need to look at the long-standing rally which began late last year. This multi-month rally started when gold was trading at 1120 per ounce in December, and at this point has been composed of two upside rallies’, as well as two corrective price declines immediately following the conclusion of each leg of the rally.

The first leg occurred as gold traded from 1120 in December of last year and topped out at 1262 at the end of February. Immediately following this rally was a small correction moving gold prices from 1260 to just below $1200 per ounce. During the first week of March gold began to gain value, until it traded within three dollars of $1300 per ounce during the week of April 17.

For the last three consecutive weeks, since gold prices reached a top at just below 1300, we have seen prices decline. This week, market participants witnessed gold dropping approximately $40 per ounce, which is the greatest weekly decline since March of this year.

On a technical basis, gold prices plunged through both the 50 and 200-day moving average this week. This fact indicates a real possibility that gold pricing has moved past the extremely bullish sentiment which is predominant this year to take on a very bearish outlook.

At the same time, when we look at this most recent price decline through the eyes of a Fibonacci retracement, there are two hard factors which support the assumption that this price decline is corrective in nature and an end to the bullish rally is not occurring.

Looking at the totality of price range this year, the net result of the last three consecutive weeks of lower pricing is a 38.2 retracement. Furthermore, if we look at the second leg of the rally, which began at 1200 and concluded just shy of 1300, gold prices have retreated just over 61.8% of the gains seen during that leg.

More simply, at this time, a technical case can be made for either a key reversal or a strong correction in gold pricing. Only time will tell which technical market’s assumption is correct.

For those who would like a deeper analysis, I invite you to watch the Weekend Review, our video newsletter. This video will be available for viewing by 7 PM EST today. Simply use this link to view, or to sign up for a free trial. 

Wishing you as always, good trading,

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.