Hawaii Six O - Gary Wagner
Will gold prices hold above the 100-day moving average?
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
Gold futures opened at $1957 on Monday and today is trading at $1864.60. This week traders have witnessed almost a $100 drop in pricing. Monday’s action resulted in gold dropping by $57 taking pricing below its 50-day moving average kicking off the bearish sentiment. On Wednesday gold prices closed below $1900 per ounce for the first time since July 27th, this intra-day low took gold pricing to $1855 per ounce for the first time since July 22nd.
With gold clearly below its 50-day moving average it has indicated that on a short-term basis the extremely bullish market sentiment has waned. The 100-day moving average is a solid technical indicator of intermediate market sentiment, just as the 200-day moving average is an indicator of long-term market sentiment. With gold trading within dollars of the 100-day moving average, it is critically important that this price point serves as support rather than resistance. A break below it could signal a test of pricing as low as $1800 per ounce.
As of 4:36 PM EST the most active December 2020 Comex gold contract is fixed at $1864.60, with a net decline of $12.40. Although dollar strength has been a strong contributor to this week’s dramatic decline in gold pricing, it was major selling pressure that was the primary cause of falling prices in gold futures. Today for example gold is trading down by -0.66%, and the dollar index is currently fixed at 94.645, up only +0.27%. This means that the differential between the two tells us the decline in gold futures due to selling pressure is 0.39%.
The same cannot be said for spot or physical gold. According to the KGX (Kitco gold index) spot gold is currently fixed at $1863.10, which is a net decline of $5.50. On closer inspection dollar strength resulted in a decline of $5.80 per ounce, and fractional buying resulting in a net gain of $0.30 on the day.
This disparity between spot and futures pricing could reflect a short-term bias to the upside, with futures exhibiting a last bullish posture after losing over twice as much per ounce in Friday’s trading session.
However, the real question is whether or not gold futures will maintain at a price point above its 100-day moving average. Continued dollar strength will most certainly provide headwinds for any potential for upside moves in the precious yellow metal. But with the upcoming presidential election and current global pandemic worsening which has caused global government’s to expend vasty amounts of capital, a strong case can be made for gold prices remaining firm, above the 100-day moving average, and above $1800 per ounce.
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Wishing you as always good trading and good health,