Hawaii Six O - Gary Wagner
Gold futures selloff strongly as it closes below spot gold
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Gold futures basis the June 2020 Comex contract closed down $30.50 (-1.76%), and is currently fixed at $1705.10. The June contract traded to a low of $1700 before recovering slightly. At the same time spot gold is currently trading down $17.30 and fixed at $1710.30.
Today’s lower pricing has created an inversion between gold futures (the June contract) and spot pricing, with spot above the futures contract prices. This selloff occurred with strong tailwinds provided by dollar weakness. According to KGX (Kitco Gold Index) spot gold actually sold off by $32.85. However, after factoring in a gain of $15.55 directly attributable to dollar weakness selling in gold as well as all the other precious metals was limited due to a weak dollar.
All of the precious metals traded lower on the day. A large component of today’s lack of safe haven allure was the strength of U.S. equities which traded strongly higher. According to MarketWatch, “Gold futures ended lower on Tuesday as global equities rallied, in response to the lifting of business lockdowns as the coronavirus pandemic recedes, along with encouraging reports of progress toward a COVID-19 vaccine, dulling the yellow metal’s haven appeal.”
The S&P 500 traded to a high of 3021 before closing just below 3000 at 2991.77, resulting in a net gain of 1.23% today. The Dow Jones industrial average gained over 500 points (+529.95) closing just shy of 25,000 points and gaining 2.17% today. This is the highest-level U.S. equities have traded to since the pandemic began reached America in mid-March. This caused investors to re-focus on positive signs and optimism as restrictions were eased in the United States.
Based on our technical studies, gold futures broke below critical levels. First the 23.6% Fibonacci retracement level at $1709.40. More importantly breaking below the support trendline based upon the previous lows since the middle of April to current pricing.
Although it is noteworthy that gold futures held above the key psychological level of $1700, and in fact that was the intraday low. However, if this level does not hold the next support level does not occur until $1660 per ounce, the 38.2% Fibonacci retracement level. The Fibonacci levels cited above are based upon data set which begins mid-March when gold traded at $1450 per ounce, up to this year’s high at $1788.
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Wishing you as always, good trading,