Hawaii Six O - Gary Wagner
Dollar strength and selling pressure resulted in gold plunging below $1800
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
A combination of traders actively selling gold futures and dollar strength caused gold to break below $1800 in trading today. Unlike last week when traders effectively bought the dip on the three days that gold traded to intraday lows between $1798 and $1800, this week's market participants contributed to the downward momentum. With last month’s FOMC meeting minutes set to be released on Wednesday traders are cautious and waiting to see if any new insights can be gleaned from the FOMC meeting minutes.
As of 5:20 PM EDT gold futures basis, the most active December contract is currently fixed at $1795.10 a decline of $20.40 or 1.12%. Gold traded to a high of $1818.90 and a low of $1787.60.
The chart above is a daily Japanese candlestick chart of gold futures. This chart contains one trendline which was a support trendline created from two lows. The first low occurred in August 2021 when gold hit a low of approximately $1675. The second low occurred in the middle of May when gold traded to a low of approximately $1786. On June 30 and July 1 gold prices broke through the support trendline created at which time the support trendline became a resistance trendline.
Support and resistance price points can be part and parcel of the same thing. Once a support line is broken it then can be used as a resistance line. The example I like to use is someone standing on the second floor of a building. On the second level, the floor below them is support. However, to someone on the first level looking up it is seen as a ceiling or resistance, the same affiliation can be seen as support/resistance.
That being said, once prices broke below the support line it became a resistance line. When extended forward it can give traders insight as to where a level of resistance may occur at. This is just what we saw in the support/resistance trendline in chart 1. The two lows (green rectangles) that created the support trendline became the resistance trendline (red rectangle) when extended.
The support level of $1800 as seen the last week was certainly taken out very quickly in trading today. However, traders did buy the dip when gold traded to its low today of $1787.60 which corresponds to gold’s 50-day moving average. It also corresponds to the second low used in the trendline seen in chart 1. Today’s low and the second low of the trendline occur at the same price point.
While trendlines are not perfect with 100% accuracy they can give traders an insight into key levels of potential support and resistance. They are a valuable tool for the market technician and today offered valuable insight.
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Wishing you as always good trading,