Gold Market Update

Gold is trading higher this morning after the European Central Banks cut rates this morning but had already been holding above 1450 in Asian & London trade after a test of what we described on the GoldTrends website on Tuesday evening as the most important weekly support at 1440-1450 & the low came in at 1439. Gold actually moved lower to that 1440 area after weak economic data was released and that is an interesting character change in gold’s behavior. However that change has been coming gradually.

Recall last year whenever weak data came out, it would spur a rally in gold as the thinking went that the FED would have to continue stimulus. But over the past few months that has changed as weak data would spike gold for a day or two but then would always reverse lower to the main trend, which has been down. Thus it will be important to see if yesterday’s action in gold has taken another step and will now begin to view weak economic data as a negative. That would suggest a realization in the gold market that after all the FED has done, it is (at the moment) only keeping things afloat and barely at that. If that is the case then the inflation outlook from a revival in global economies is less and less likely if the economies turn down.

It is important to note that the last two years have had a slowdown in this time frame and both years spurred a 10% drop in the US stock market as well. And it is happening again this year not only in USA but Europe is already for all intents and purposes in a recession and thus the cut in rates we saw today.

The economic data yesterday resulted in a slide in US equities, liquidation in industrial commodities and seemingly and the slide in gold prices. Thus we will have to see if today’s upturn in gold will last. With the NFP report due tomorrow, gold should find resistance near the 1472 – 1475 area. Darth projects tomorrow’s NFP data to be weak and doesn’t put under 100K out of the question.

However, with a noted portion of the trade already expecting the ECB to cut interest rates, some traders fear a buy the rumor/sell the fact response to the ECB decision

Fortunately, the markets have partially reversed the quasi deflationary environment seen at times yesterday, especially with the Euro zone providing more fodder for that argument with weak German manufacturing orders results.

Randgold mining company announced reductions in capital expenditures and the Randgold CEO actually suggested that prices could go lower later this year.

The most important support gold is getting right now is the Asian physical demand has continued this week.

Gold also remains concerned that the pressure in Europe for Italy and other nations needing more funds will be expected to sell some of its gold holdings. The World Gold council is suggesting an alternative to gold sales with gold backed bonds.

Chinese equity markets were weaker after a holiday period and ongoing concerns weaker Chinese economic data released earlier in the week. US and European Stocks are higher on the ECB rate cut.

In summary it comes down to whether gold (and stocks) will hold this Thursday rally on the ECB cuts and how well they will weather the NFP payroll report on Friday morning.

The long term trend in gold remains neutral to higher, the medium term down and the short term is still rising since the lows of April. Thus far the pullback that began last Friday at 1485 is still in play but has been well contained and is turning out to be more of a sideways consolidation in the 1440-1480 range. Yesterday’s test of weekly support was right at the short term channel line. Short term cycles have been in a pullback mode but they are due to turn up next week and that should keep the upside move since the lows in play if the cycles turn next week as scheduled, it should produce a move above 1500 to the 1540-1560 area later in May or early June.

GOLD CHART

Note that yesterday’s low was right at the lower channel line and at the green 200 hour moving average. As long as we hold that 1440 area the short term trend remains up. Thus look for continued support at 1440 and potentially at the lower dotted white channel line as it continues to rise. If gold reacts to the downside on the NFP report tomorrow in a hard down move, expect support at the horizontal line at 1425. That was the initial breakout point from last week and should be strong support in the event that 1440 gets taken out. Resistance is the 1475-1485 area as it has been for the past week but that area won’t hold gold back forever as it gets repeated tests. If the short term cycles we watch play out, a new 2 week rally should begin next week and that would take out this resistance area at set the market on a test towards 1520-1560.

SILVER CHART

Silver also found support at its weekly price point’s right at the purple trend line on our charts. Note how there’s an uptrend and a downtrend channel that is converging. Silver is trying to forge a new uptrend channel that it has been climbing but still needs to break out of the down trending channel. Note how the 24.00-24.50 area is now the upper end line of the down channel. A close above 24.60 would put silver in the uptrend channel with resistance at 25.30 and climbing with the upper purple trend line. If cycles turn up next week, silver could challenge the 26.00-26.50 area. Let’s see if silver can get out of the downtrend channel and how well it reacts to the NFP on Friday. Support is the 23.30-23.50 area and resistance at 24.10-24.60. As long as silver remains in the purple channel and above the green 200 hour moving average on a closing basis, the short term trend will remain higher.

 

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TO BUY OR SELL GOLD OR ANY OTHER INVESTMENT VEHICLE LISTED. 

 Do your own due diligence. 

No one knows tomorrow's price or circumstance. 
 I intend to portray my thoughts and ideas on the subject which may s be used as a tool for the reader. 
I do not accept responsibility for being incorrect in my speculations on market trend. 

 King Regards