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(Kitco News) - Comex April gold and silver futures prices dropped sharply and quickly in mid-morning trading Wednesday, with both markets closing sharply lower and near their daily lows on the day. The markets began to sell off around the same time U.S. Federal Reserve Chairman Ben Bernanke was delivering remarks to the U.S. Congress. Bernanke’s remarks were cited by many as prompting the sell-off in the precious metals. April gold last traded down $75.50 at $1,712.90 an ounce. Spot gold was last quoted down $72.20 an ounce at $1,712.15.  March Comex silver last traded down $2.557 at $34.58 an ounce.

In prepared remarks to the U.S. Congress Wednesday morning Bernanke said the U.S. economy is showing signs of improvement. The Fed chief made no mention of another round of quantitative easing in the works by the U.S. central bank. This led some to reckon that with an improving U.S. economy the Fed may not need to continue to inject liquidity into the monetary system. While Bernanke’s comments were not outright bearish for commodity markets, the past four years of very easy monetary policy has been a major underlying bullish factor for the raw commodity sector, including the precious metals. However, it can be argued that improving U.S. and world economic growth prospects would be bullish for commodity markets due to increasing commercial and consumer demand.

Importantly, the gold and silver futures markets were ripe for corrective, technical and profit-taking pullbacks following recent strong gains that had sent gold and silver prices to multi-month highs. The Bernanke testimony gave many traders and investors an excuse to “ring the cash” register and take some profits. Also, veteran commodity market watchers know these markets can make sudden, unexpected price moves to temporarily roil investors and traders.

While the gold and silver markets saw rapid downdrafts in prices Wednesday, no serious overall technical damage was inflicted. More specifics on the technical pictures in these markets will be in the paragraphs below.

The U.S. dollar index traded solidly higher Wednesday, after starting out the session with only slight gains. The Bernanke remarks to Congress were deemed bullish for the greenback. Early on Wednesday the dollar index hit a fresh 3.5-month low. Short covering in the U.S. dollar was featured today. The dollar index bears still have some downside technical momentum and that is still a near-term bullish factor for gold and silver.

Nymex crude oil futures prices traded weaker Wednesday, which was also a negative for the precious metals. Crude has backed well off this week’s high. If crude starts to trend lower in the near term that would likely at least limit any upside movements in gold and silver.

On the European Union sovereign debt crisis front, the big European Central Bank refinancing operation was very well subscribed Wednesday, with banks taking more funding than expected. Traders viewed the results with mixed opinions and the markets were little impacted. The overall EU debt crisis remains a major underlying bullish factor for safe-haven gold.

The London P.M. gold fixing was $1,770.00 versus the previous P.M. fixing of $1,781.00.

Technically, April gold futures prices closed nearer the session low Wednesday and hit a fresh five-week low. Prices also closed at a bearish monthly low close. Just Tuesday gold hit a 3.5-month high. The gold market bulls faded badly Wednesday, and some near-term chart damage was inflicted, although not serious. A two-month-old price uptrend on the daily bar chart was at least temporarily negated Wednesday. If there is good follow-through selling pressure on Thursday or Friday, more serious chart damage would then be inflicted. The bulls’ next upside price breakout objective is to produce a close above solid technical resistance at this week’s high of $1,792.70. Bears' next near-term downside price objective is closing prices below psychological support at $1,700.00. First resistance is seen at $1,725.00 and then at $1,740.00. First support is seen at Wednesday’s low of $1,704.50 and then at $1,700.00. Wyckoff's Market Rating: 6.0.

March silver futures prices scored a big and bearish “outside day” down on the daily bar chart Wednesday and closed nearer the session low. Heavy profit taking was featured after prices hit a fresh 5.5-month high early on. Silver bulls faded badly Wednesday, but no serious chart damage occurred. Prices are still in a two-month-old uptrend on the daily bar chart. Bulls do now need to step up and show fresh power soon. Bulls’ next upside price breakout objective is closing prices above solid technical resistance at today’s high of $37.48 an ounce. The next downside price breakout objective for the bears is closing prices below solid technical support at the February low of $32.64. First resistance is seen at $35.00 and then at $35.50. Next support is seen at $34.00 and then at Wednesday’s low of $33.75. Wyckoff's Market Rating: 6.0.

March N.Y. copper closed down 415 points 387.05 cents Wednesday. Prices closed near mid-range. The key “outside markets” turned bearish for copper during the trading session, as the U.S. dollar index rallied and crude oil prices weakened. Copper bulls still have the overall near-term technical advantage. Copper bulls' next upside breakout objective is pushing and closing prices above major psychological resistance at 400.00 cents. The next downside price breakout objective for the bears is closing prices below solid technical support at the February low of 369.35 cents. First resistance is seen at 390.00 cents and then at 392.50 cents. First support is seen at 385.00 cents and then at 382.50 cents. Wyckoff's Market Rating: 6.0.

Follow me on Twitter! If you want daily, or nightly, up-to-the-second market analysis on gold and silver price action, then follow me on Twitter. It's free, too. My account is @jimwyckoff .


By Jim Wyckoff of Kitco News; jwyckoff@kitco.com

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